GameStop Earnings Plunge

GameStop Corporation (GME), the biggest video game retailer, reported dismal second-quarter results with a low-single-digit decline in the top line, but a double-digit fall in the bottom line. These were driven by sluggish demand for video game consoles and new software due to the lack of a popular game title release.

However, the company’s share in the new video game market increased by 2.0%.

Earnings per share (EPS) for the quarter under review came in at 23 cents, below the Zacks Consensus Estimate of 29 cents, and plummeted 32.4% year over year from 34 cents reported in the prior-year quarter.

Revenue for the quarter declined 3.7% to $1,738.5 million compared to $1,804.4 million reported in the year ago quarter, following an increase of 9.2% in the first quarter of 2009.

By sales mix – New video game hardware sales fell 20.6% to $301.3 million, whereas sales of new video game software dipped 10.7% to $629.8 million. However, the demand for used video games remains resilient marking a sales growth of 18.9% to $560.8 million.

Despite the challenging environment, management expects new software sales to up tick in the second half of 2009, led by popular title releases such as ‘Call of Duty: Modern Warfare 2,’ ‘Assassin’s Creed 2’ and ‘Halo 3: ODST.’

The uncertainty prevailing in the market as well the slump in consumer demand prompted management to be conservative in its forecast, and consequently it lowered its full-year 2009 earnings outlook. Management now expects EPS for fiscal year 2009 in the range of $2.40 to $2.64, down from $2.83 to $2.93 predicted earlier.

Management expects third quarter EPS in the range of 27 cents to 33 cents, and fourth quarter EPS in the range of $1.47 to $1.65.

Comparable store sales dipped sharply by 14.1% compared to an increase of 20.0% in the prior-year quarter, primarily due to recessionary effects and slump in new console sales. Comps declined by 1.5% in the first quarter of 2009. Wealth destruction and reduced access to the credit markets have resulted in lower consumer discretionary spending.

Comps are expected to decline between 6.0% and 11.0% in the third quarter, and between 1.0% to 7.0% in the fourth quarter of 2009. For the full-year 2009, management expects comps to fall in the range of 4.0% to 8.0%.

Comments

[Speedemon]

Finally, a worth while analysis. Ladies and gentlemen, as developers/publishers push out release dates for upcoming blockbluster titles, sales will continue to be stagnant for this retailer. This article mentions a few of these titles, but several more have been pushed out to early next year and next fall. You can expect some sales increases beginning in Oct this year and more significant increases next year.

2009 Aug 21 10:19 AM

[TJ0829]

Never under estimate your gut feeling most of the time gut is right, my feeling is GME will do just fine in 2010 and beyond after this tough time(thanks to recession).

Lots of excellent new games comming out and this is the cheapest entertainment out ther and no one is stop going to game stop because wal-mart's and best buy's cutomer service sucks. Downloading is the only thing we have to worry about and I have my doubts about that too.

I want my game in my hand so I can take it my friends house and play, trade in, etc....

2009 Aug 21 12:44 PM

[Individual Investor]

The price of GME is currently down for many reasons. Increased competiton, download threats, and other fears. However, GME continues to stay profitable even during this difficult economic time. How many other great companies can say the same. Most other retailer's earnings are way lower than GME's. Great games coming out. I'm a Gamer and I shop and trade games in at Gamestop all the time. They were as busy as heck this weekend at the mall. PS 3 slims are out. Console price cuts means more software sales. Gamers are going to trade their PS2 games in for the Ps3 games. Go Gamestop !

2009 Aug 31 04:55 AM