Why GameStop Is Struggling Despite Earnings Beat

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When GameStop Corp. (NYSE: GME) reported its fiscal fourth-quarter financial results after the markets closed on Thursday, the company posted $2.38 in earnings per share (EPS) and $3.05 billion in revenue. Consensus estimates from Thomson Reuters had called for $2.29 in EPS and revenue of $3.1 billion. In the same period of last year, the specialty retailer reported EPS of $2.40 and $3.52 billion in revenue.

Total global sales decreased 13.6%, while consolidated comparable store sales declined 16.3% (−20.8% in the U.S. and −4.6% internationally).

Technology Brands sales, which are not included in comparable store sales, increased 43.9% to $256.0 million, primarily driven by year-over-year store growth. Also, collectibles sales rose 27.8% to $212.4 million, driven by strong sales of Pokémon-related toys and apparel.

The company announced that going forward it will no longer provide quarterly guidance in an effort to “reduce investor distraction.” GameStop will continue to issue full-year guidance.

In terms of the outlook for the 2017 full year, the company expects to see EPS in the range of $3.10 to $3.40 and comparable sales down 5% to flat. The consensus estimates are $3.73 in EPS and $8.68 billion in revenue.

On the books, GameStop cash and cash equivalents totaled $669.4 million at the end of the quarter, up from $450.4 million in the same period from last year.

Paul Raines, CEO of GameStop, commented:

GameStop’s transformation continued to take hold in 2016, as our non-gaming businesses drove gross margin expansion and significantly contributed to our profits. Meanwhile, the video game category was weak, particularly in the back half of 2016, as the console cycle ages. Looking at 2017, Technology Brands and Collectibles are expected to generate another year of strong growth, and new hardware innovation in the video game category looks promising. As we continue our transformation plan, we will also be focused on managing SG&A spend, rationalizing our global store portfolio, and maximizing free cash flow generation to drive shareholder value.

Shares of GameStop closed Thursday at $23.96, with a consensus analyst price target of $25.84 and a 52-week trading range of $20.10 to $33.72. Following the release of the earnings report, the stock was down 10.7% at $21.40 in early trading indications Friday.