GameStop's Momentum... Game Stopped For Now (GME)

GameStop Corp. (NYSE:GME) has posted earnings of $0.31 EPS (after $0.02 debt retirement cost) and sales were $1.6112 Billion for the quarter.  First Call had estimates at $0.21 EPS and $1.4 Billion revenues.  This was also well above its guidance. 

Unfortunately for what lies ahead….. The company issued guidance of +7% to +9% on same store sales for the quarter.  It also puts EPS at $0.95 to $0.97 for the quarter, but First Call has estimates at $0.97.  Fiscal 2007 was raised to $1.61 to $1.63 with total revenue growth of 28% to 29% on full year same store sales comps at +20% to +21%, but that looks like all the juice is from this past quarter rather than the coming quarter.

The video game sales leader opened 181 stores in the quarter, passing the 5,000 store goal on a global basis.

There is a single message here that we are using for conjecture: "We smoked earnings, but this strength cannot last because there are only so many Wii and Xbox system launches that can take the industry by force, and there are only so many Halo 3 and Madden NFL releases."  You may see a "sell the news" reaction here because of no forward upside, but the truth is that we’ve cautioned about 2008 because the launch schedule isn’t what 2007 saw and the comparable sales will be hard to see any great numbers because of 2007’s strength.  If analysts are overly shocked here then they aren’t able to factor in upgrade cycles and growth cycles that smooth out.

The market feels the same, because shares are down 7% pre-market at $49.25.  The 52-week trading range is $24.87 to $60.80.

• Maybe its new competition will start getting noticed as well.
• Compare to EA’s earnings numbers.
• Or compare to the broader group.
• Still waiting for the Bungie spin-off news to formally come out.

Jon C. Ogg
November 20, 2007