Did GameStop Miss the Mark?

by Jon C. Ogg

GameStop (GME) posted same-store-sales gains of 8.8% for the third quarter.  Total sales were $1.0116 Billion and earnings per share were $0.22 before merger related expenses.  Consensus estimates were $0.22 EPS and $1.03 Billion.

The company press release says this is at the high-end of guidance, although that is actually a hair under on the revenue side.  Considering that the stock had gone up so much and considering the easy comparable same-store-sales this is a disappointment at first glance.  Video game software sales grew 14% and hardware sales were up 69%.

Its guidance for Q4 2006 are for 14% to 18% same-store-sales gains on diluted earnings of $1.53 to $1.59 EPS, but the street estimate is $1.60 for the coming quarter.  Its fiscal 2006 EPS projections are $1.98 to $2.04, although that is before a $0.17 option charge for the year (but only 1 quarter left on charges).  Consensus is $2.01 for fiscal 2006.

GameStop shares are down 3.3% at $49.50 in pre-market activity.  With the launch of the Wii, the launch of PS3, and even the new add-on features for World of Warcraft sales mostly coming in this current quarter it makes you wonder what happened that they didn’t think their numbers would make consensus.  The company has a conference call at 11:00 AM EST and we will listen in on this call to gleam extra data before we issue any damning words on the quarter.   

Because this looks like a beat and then like a miss (or vice versa) you could see some big stock swings up and down and every which way until the street decides on the real verdict here.  Shares had gone up 40% from its summer lows to last week’s highs, so the street is likely not going to be tolerant of anything questionable here.

November 21, 2006