GameStop Holiday Sales Inch Up - Analyst Blog


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GameStop Corporation ( GME ) had little to cheer about its total sales figure for the nine-week holiday period ended December 31, 2011, as sales merely inched up to $3,019.1 million from $3,018.1 reported in 2010. New video game software sales attempted to propel the company's sales, but dismal sales across game consoles and hardware were the deterrents.

The new video game software sales registered a growth of 9.9% to $1469.2 million, reflecting robust sales of titles, such as Activision's Call of Duty: Modern Warfare 3, Bethesda's Elder Scrolls V: Skyrim and Ubisoft's Assassin's Creed: Revelations.

On other hand, new video game hardware sales suffered a decline of 19.6% to $538.9 million due to the lack of launch of new console products and insufficient price cuts, which could have stirred up demand compared with 2010. This benefited retailers such as Wal-Mart Stores Inc. ( WMT ) who offered best deals in the hardware category.

Consumers these days are more tech savvy. Instead of buying traditional game consoles, they prefer online games and spend more time playing games on handheld devices such as tablets and iPhones. Consequently, the market of traditional video game products has suffered largely. In order to revamp the sale of video game products, GameStop started concentrating on the sales of used games to console users.

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 sales of used video game products, which accounted approximately 21% of total sales, grew 3.5% to $627.9 million during the holiday period.

The company indicated that comparable-store sales during holiday period dropped 0.3%, reflecting a decline of 1.5% at its international comps, partially offset by 0.3% growth witnessed in the U.S. comps. However, GameStop posted sturdy digital sales, which surged 60% buoyed by subscriptions for downloadable contents such as "Call of Duty Elite".

The disappointing sales results prompted management to lower its comparable-store sales guidance, and they now expect comps for both the fourth quarter and fiscal 2011 to decline between 1% and 2%. The company had earlier forecasted fiscal 2011 comparable-store sales in the range of flat to down 1%.

However, GameStop continues to expect earnings between $1.66 to $1.76 for the fourth quarter and in the range of $2.82 to $2.92 per share for fiscal 2011. The current Zacks Consensus Estimates are $1.72 for the quarter and $2.86 for the full year.

GameStop, which competes with Best Buy Co. Inc. ( BBY ) and Inc. ( AMZN ), also sustained its share repurchase activity during the holiday period, buying back 2 million shares at $22.38 each, aggregating $45.2 million. The company still has $329.8 million remaining at its disposal under the share repurchase program. The company also redeemed $125 million of its Senior Notes on December 16, thereby making itself debt free as it entered 2012.

Closing Remark

GameStop continued to branch out and is transformed 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. The company's buy-sell-trade model of selling new games and buying back used games and PowerUp Rewards program make it popular destination for shopping.

Currently, we have a long-term 'Neutral' recommendation on the stock. Moreover, GameStop holds a Zacks #3 Rank that translates into a short-term 'Hold' rating, and correlates with our long-term view.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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