), one of the leading retailers of software, hardware, and game
accessories for video game systems and personal computers,
announced its first-quarter 2012 financial results on May 16, 2012.
The company posted poor quarterly results primarily due to the lack
of significant game title launches and lower-than-expected hardware
and software sales.
In the paragraphs that follow we will discuss the company's
scorecard based on the recent earnings announcement, subsequent
estimate revisions by analysts as well as the Zacks Rank and
long-term recommendation for the stock.
First-Quarter 2012 Synopsis
The company reported earnings of 54 cents a share that came in
line with the Zacks Consensus Estimate, but fell 3.6% from 56 cents
earned in the comparable prior-year quarter. The decline in
earnings was due to weak traffic and slump in the video gaming
The increased demand for online gaming activities and shift in
preferences toward tablets and mobile phones from traditional game
consoles took a toll on the company's top line. GameStop's total
revenue came in at $2,002.2 million, down 12.2% on a year-over-year
basis, and also fell short of the Zacks Consensus Revenue Estimate
of $2,061 million. The retailer also stated that comparable-store
sales tumbled 12.5% during the quarter.
(Read our full coverage on this earnings report:
GameStop Posts In-Line Results
Agreement of Analysts
In the last 30 days, 15 out of 16 analysts covering the stock
lowered their estimates, whereas none raised the same for the
second quarter of 2012. For the third quarter, 8 out of 18 analysts
revised their estimates downward while 7 made upward revisions.
For fiscal 2012, 10 out of 18 analysts trimmed their estimates,
while only one moved in the opposite direction in the last 7 days.
As for fiscal 2013, 9 out of 16 analysts made downward revisions to
their estimates, while none made upward revisions.
What Drives Estimate Revisions
Clearly a negative sentiment is palpable among most of the
analysts regarding GameStop's performance in the subsequent
quarters. Following the earnings release, the Zacks Consensus
Estimate has been moving downward with the majority of analysts
remaining bearish on the stock.
The analysts showed unidirectional move for the second quarter
of 2012 and for fiscal 2012 and 2013. Most of the analysts lowered
their estimates in order to be in line with the company's guidance.
Management expects comparable store sales to fall between 5% and
11% during the second quarter of 2012 and to remain flat or decline
5% during fiscal 2012.
The analysts believe that the shift in consumer preference and
the evolution of the online gaming industry is weighing on the
company's top line. The slump in the video gaming industry coupled
with weak traffic impacted the company's performance and as a
result, gross profit declined 3.3% to $599.9 million.
Moreover, consumers' increasing accessibility to video games and
PC entertainment software over the Internet could hurt the sales of
packaged goods and used games, and impede future growth. Therefore,
the majority of analysts trimmed their estimates for fiscal 2012
However, some analysts raised their estimates for the third
quarter of 2012, mainly on account of the company's venture into
the digital segment through iDevice and its gaming tablet business.
Consistent with the company's recent venture, it recently announced
the shipment of Steam Wallet codes from its stores across the U.S.
The company's initiative is expected to be accretive by some of the
analysts who moved up for the third quarter of 2012.
Magnitude of Estimate Revisions
The magnitude of estimate revisions by the analysts is clearly
reflected through changes in the Zacks Consensus
The Zacks Consensus Estimate for the second quarter of 2012
dropped 12 cents to 15 cents a share in the last 30 days. For the
third quarter, the estimate fell by a penny to 42 cents a
For fiscal 2012 and 2013, the Zacks Consensus Estimate plunged 4
cents and 8 cents to $3.16 and $3.37, respectively, in the last 30
The company's strategy is to grow through store expansion in
favorable localities, by providing the largest collection of video
game titles, and by leveraging its first-to-market distribution
network to offer the latest hardware and software releases.
GameStop holds a significant position in the used video game
products market. The company provides a greater selection of used
video game products for both current and previous generation
platforms. The market for used video game products has been
relatively resilient through the recent economic downturn.
Currently, consumers can only download a limited number of PC
entertainment software and older generation video games from the
Internet. However, with the advancement of the technology, if the
consumers' accessibility increases, they may no longer opt for PC
entertainment software and video games through the company's retail
Therefore, we retain our long term 'Neutral' recommendation on
GameStop. However, GameStop, which faces stiff competition from
), carries a Zacks #4 Rank that translates into a short-term 'Sell'
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