Why GameStop Is Dragging Despite Solid Q3 Results

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When GameStop Corp. (NYSE: GME) released its fiscal third-quarter financial results after the markets closed on Thursday, the video game retailer said that it had $0.67 in earnings per share (EPS) and $2.08 billion in revenue. The consensus estimates had called for $0.57 in EPS and $2.03 billion in revenue, and the same period of last year reportedly had EPS of $0.54 on $1.99 billion in revenue.

During the most recent quarter, total global sales increased 4.8% (increased 6.3% in constant currency) resulting in a consolidated comparable store sales increase of 2.1% (3.4% increase in the United States and 0.5% decrease internationally).

New hardware sales increased 12.8%, driven by demand for Xbox One X and Sony PS4. New software sales increased 10.9%, driven by the strong slate of titles that launched during the quarter. Accessories sales increased 32.6% on the strength of headset and controller sales. Pre-owned sales declined 13.4%.

While the quarterly results were decent on their own, the company did update its guidance for the coming quarter, and this is where things took a turn for the worse.

Looking ahead to the 2018 fiscal full year, the company expects to see EPS in the range of $2.55 to $2.75 and total sales dropping between 2% and 6%. Consensus estimates call for $3.04 in EPS and $8.91 billion in revenue.

Rob Lloyd, GameStop’s chief operating officer and chief financial officer, commented:

We experienced solid growth in the third quarter, including double-digit growth across software, hardware, accessories and collectibles, underscoring GameStop’s leadership position in video games and our unique ability to satisfy all of our customers’ entertainment needs.  Notably, software sales benefited from a compelling title line-up compared to last year, including strength from Red Dead Redemption 2 and Spider-Man, as well as the earlier launch of Call of Duty compared to last year.  We are especially pleased with our performance in October, a month where The NPD Group disclosed that the U.S. physical video game industry grew by 46% while our U.S. physical video game revenue outpaced the industry and increased 63% resulting in market share gains.

Shares of GameStop traded down 11% just after Friday’s opening bell at $13.00, in a 52-week range of $12.14 to $20.31. The stock has a consensus analyst price target of $14.91.