Playing Games? GameStop Slides Despite Strong Q1

GameStop (GME) shares are sharply lower this morning despite better-than-expected results for its fiscal first quarter ended May 3.

For the quarter, the video game retailer reported sales of $1.81 billion, beating the Street consensus of $1.72 billion. EPS of 37 cents a share, or 38 cents after you back out debt retirement costs of a penny a share, beat the Street consensus of 35 cents, and topped the company’s own guidance of 32-33 cents.

For the second quarter, the company sees comp store sales up 12%-14%, with EPS of 26-28 cents a share. The Street has been looking for 26 cents.

For the January 2009 fiscal year, GameStop sees profits of $2.30 to $2.39 a share, with comp store sales growth of 10% to 12%. The Street has been looking for $2.33 a share. The company had previously been expecting $2.25 to $2.34 a share.

In the release, the company veritably gushes about the outlook for video game sales. The company noted that the installed base of video games grew 31% in 2007, “the highest incremental growth in the history of the business,” and he says hardware unit sell-through should match those levels in 2008. The company said it opened 210 new store in the first quarter, and is on target for 550-600 new stores in 2008, half of those outside the U.S.

Despite all that, the stock is selling off hard: GME is down $4.69, or 9.2%, to $46.15.

Comments

[Daniel Jacome]

stock is breaking down finally -- now that the main product cycle is over, its time for the valuation to deflate a bit.

[mcadoo3312]

I actually think it will be the opposite. The main product hardware cycle may be COMING to an end, but it isn't over. Moreover, hardware margins are much lower than software, especially that of the used product. As more games roll out, margins will increase making the stock more attractive.