) - the video game and entertainment software retailer - reported
its fiscal third quarter 2012 (ended October, 2012) financial
results on November 15, 2012. In the subsequent paragraphs we
will discuss the company's scorecard, based on its recent
earnings announcement, the estimate revisions by analysts, the
Zacks Rank as well as long-term recommendation on the stock.
Recap of the Third-Quarter
GameStop posted earnings of 38 cents a share, beating the
Zacks Consensus Estimate of 32 cents; however, it fell 2.6% from
29 cents earned in the year-ago quarter.
GameStop reported a fall in its top line and comparable-store
sales, due to the lack of significant game title launches. The
company posted total revenue of $1,772.8 million, down 8.9% from
the year-ago quarter and fell short of the Zacks Consensus
Revenue Estimate of $1,791.0 million.
(Read full report on earnings:
GameStop Beats on EPS, Sales Down
For fiscal 2012, GameStop anticipates comparable-store sales
to decrease in the range of 6%-9%. However, GameStop continues to
expect fiscal 2012 earnings between $3.10 and $3.30 per
For the fiscal fourth quarter of 2012, GameStop expects
comparable store sales in the range of -7%-1%. Earnings are
expected to be in the range of $2.07-$2.27 per share.
Agreement of Estimate Revision
In the last 30 days, 8 out of 17 estimates were lowered and
similarly 8 estimates were revised upward for the fourth quarter
of 2012. On the other hand, for the first quarter of 2013, 6 out
of 10 were increased whereas one estimate was trimmed down.
For fiscal 2012, 14 out of 17 estimates were revised upward,
while only 1 estimate came down in the last 30 days. For fiscal
2013, 12 out of 18 estimates increased and 2 estimates were
Drivers of Estimate Revisions
GameStop posted a decline of 8.9% in total revenue with
comparable-store sales falling 8.3% during third-quarter 2012,
reflecting lack of significant game title launches and
lower-than-expected hardware and software sales. Moreover, the
company's gross profit fell 2.7% to $557.4 million and operating
income dropped 8.8% to $75.3 million, whereas operating margin
remained unchanged at 4.2%.
Owing to the company's year-over-year decline in the
third-quarter revenue and profitability, some of the analysts
lowered their estimates for the fourth-quarter of 2012.
However, the analysts remain positive about the fourth quarter
results as GameStop continues to branch-out and transform as a
mixed retailer of physical and digital gaming and electronics
products. The company's venture in digital, iDevice and gaming
tablet businesses would be accretive to its results. Further, the
company's buy-sell-trade model of selling new games and buying
back used games as well as PowerUp Rewards program makes it a
popular shopping destination.
Magnitude of Estimate Revisions
The magnitude of estimate revisions for fiscal 2012 and 2013
by the analysts is clearly reflected through changes in the Zacks
Consensus Estimates. For fiscal 2012, the Zacks Consensus
Estimate moved up by 6 cents to $3.20 per share in the last 30
days, whereas for fiscal 2013, the Zacks Consensus Estimate went
up by 3 cents to $3.44 per share.
However, for the fiscal fourth-quarter, the Zacks Consensus
Estimate remains unchanged at $2.17 per share in the last 30
days, whereas the Zacks Consensus Estimate for the fiscal first
quarter of 2013 has increased by a couple of cents to 60 cents a
GameStop is well positioned to take the advantage of the
growing market for video game products and PC entertainment
software. The company's strategy is to grow through store
expansions in favorable localities, by providing the largest
collection of video games, and by leveraging its first-to-market
distribution network to offer the latest hardware and software
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 technology, if the
consumers' accessibility increases, they may no longer prefer to
buy PC entertainment software and video games through the
company's retail stores. This may hurt the company's sales and
impede future growth. As a result, we maintain our long-term
'Neutral' recommendation on GameStop, a peer of
The company carries a Zacks #2 Rank implying short-term Buy
rating for the next 1-3 months, based on positive earnings
surprise with an average of 11.2%.
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that
earnings estimate revisions are the most powerful force
impacting stock prices. He turned this ground breaking
discovery into two of the most celebrating stock rating systems
in use today. The Zacks Rank for stock trading in a 1 to 3
month time horizon and the Zacks Recommendation for long-term
investing (6+ months). These "Earnings Estimate Scorecard"
articles help analyze the important aspects of estimate
revisions for each stock after their quarterly earnings
announcements. Learn more about earnings estimates and our
proven stock ratings at
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