GameStop Up As Q2 Earnings Surpass Estimates on Higher Sales - Analyst Blog

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GameStop Corp. ( GME ), a video game and entertainment software retailer, posted second-quarter fiscal 2014 earnings of 22 cents a share that came ahead of the Zacks Consensus Estimate of 19 cents and rose substantially from 9 cents delivered in the year-ago quarter. The outperformance came on the back of new game releases and robust hardware sales. This led the shares of this Zacks Rank #3 (Hold) company to jump 5% in the after-market trading session yesterday.

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Total net sales increased 25.1% year over year to $1,731.4 million, and handily surpassed the Zacks Consensus Estimate of $1,656 million. Comparable-store sales grew 21.9% year over year.

Sturdy demand for Microsoft Corporation's ( MSFT ) Xbox One and Sony Corporation's ( SNE ) PlayStation 4 aided the year-over-year increase in net sales and comparable-store sales. Moreover, strength witnessed across the mobile & consumer electronics category also supported top-line growth.

By sales mix, new video game hardware sales surged over twofold to $332.3 million owing to robust demand of PlayStation 4 and Xbox One hardware while new video game software sales increased 15.6% to $497 million attributable to recently released new titles such as Ubisoft's Watch Dogs and Nintendo's Mario Kart 8. Pre-owned and value video game products sales rose 5.5% to $558 million. Sales in the other category declined 4.2% to $72.2 million.

Video game accessories sales surged 16.8% to $107.5 million whereas sales in the digital category jumped 5.9% to $52.3 million. On the other hand, mobile and consumer electronics sales soared 85% to $112.1 million attributable to contributions from Simply Mac and Spring Mobile. Digital receipts grew 17.6% to $179.2 million during the quarter.

The Technology Brands segment sustained its growth momentum, generating revenue of $70.1 million. Worldwide multichannel sales - mobile, web-in-store, pick-up at store and ecommerce - increased 49.3%.

GameStop continued to branch out and is transforming itself into 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 also remained optimistic of about the second half of the year on the back of new game releases and robust growth in next-generation consoles.

During the quarter, gross profit increased 14.4% to $550.9 million attributable to healthy top-line growth, partly offset by increased cost of sales. Gross margin contracted 300 basis points to 31.8%. Operating income nearly doubled to $36.7 million, whereas operating margin expanded 70 basis points to 2.1%.

Other Financial Aspects

GameStop, which competes with Best Buy Co., Inc. ( BBY ), ended the quarter with cash and cash equivalents of $193 million, net receivables of $91.2 million and shareholders' equity of $2,181.4 million.

During the quarter, GameStop bought back 1.90 million shares worth $75.5 million. The company still has $329.4 million at its disposal under its share repurchase authorization.

GameStop declared a quarterly dividend of 33 cents a share to be paid on Sep 16, to stakeholders of record as of Sep 3.

Store Update

GameStop, at the end of the quarter, operated 6,698 outlets, comprising 4,197 U.S. video game stores, 2,182 international video game stores and 319 Technology Brand stores. The company acquired 26 Technology Brand stores and opened 23 additional stores. The company also opened 6 video game outlets and shuttered 24 stores in the U.S., and opened 4 and closed 17 stores internationally.

Guidance

Management now forecasts third-quarter fiscal 2014 comparable-store sales to increase in the band of 1% to 5% attributable to new video game hardware sales. However, new video game software would face tough year-over-year comparison from Grand Theft Auto V video game, released last year. For fiscal 2014, GameStop continues to expect comps growth of 6% to 12%.

The company now envisions third-quarter earnings in the band of 58 cents to 64 cents and reiterated fiscal 2014 earnings of $3.40 to $3.70 per share.

The current Zacks Consensus Estimate for the third quarter and fiscal 2014 stand at 57 cents and $3.72 per share, respectively.


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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 The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: SNE , MSFT , BBY , GME



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