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GameStop (GME) Q3 Earnings Beat, Sales Miss; View Intact

Zacks

GameStop Corp. GME came up with the fourth straight quarter of positive earnings surprise, as it reported third-quarter fiscal 2016 results. The company recorded adjusted earnings per share of 49 cents in the quarter that beat the Zacks Consensus Estimate by a couple of cents, but declined 9.3% year over year. The company’s earnings were in line with the revised guidance which was issued on Nov 2.

On the other hand, GameStop’s revenues fell 2.8% year over year to $1,959.2 million and missed the Zacks Consensus Estimate of $1,973 million. The year-over-year decline witnessed was primarily due to softness in video game hardware and software sales. In the reported quarter, hardware sales fell by double-digits whereas new software and pre-owned value sales decreased by mid-single digits.

Consolidated comparable store sales (comps) decreased 6.5%, reflecting a decline of 8.4% at domestic locations and 2.3% at international locations. By sales mix, new video game hardware sales dropped 20.6% to $284.4 million, while new video game software sales fell 8.6% to $616.6 million. Moreover, pre-owned and value video game products sales came in at $470 million, down 6.4% year over year.

Video game accessories category showed strength, with sales increasing 13% to $156 million. The Collectibles category’s sales surged 37.3% year over year to $109.4 million. On the other hand, an increase in DLC for The Division and console digital currency drove 11.8% growth in digital receipts to $44.7 million.


The Technology Brands segment reported revenue growth of 54.4% to $216.3 million. In an effort to augment its Technology Brands segment’s revenue, GameStop completed the acquisition of AT&T, Inc.’s T authorized retailers – Cellular World Corp., Midwest Cellular and Red Skye Wireless. Following the acquisition of these AT&T authorized retailers, the company has added 507 stores to its Technology Brand portfolio.

During the reported quarter, gross profit climbed 7.4% to $708.2 million, while gross margin expanded 360 basis points to 36.1%. Rapid growth across the digital, Tech Brands and collectibles categories backed the improvement.

GAMESTOP CORP Price, Consensus and EPS Surprise

GAMESTOP CORP Price, Consensus and EPS Surprise | GAMESTOP CORP Quote

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $356.1 million, net receivables of $181.1 million, long-term debt of $814.3 million and shareholders’ equity of $2,124.1 million.

In the reported quarter, the company repurchased 1.35 million shares for $36 million at an average price of $26.63.

The company declared a quarterly cash dividend of 37 cents per share, which is payable on Dec 13.

Guidance

Management reiterated its fiscal 2016 earnings guidance which was provided on Nov 2. GameStop now predicts earnings in the range of $3.65 to $3.80 per share. It expects same store sales to decline in the range of 6.5% to 9.5%.

For the fiscal fourth quarter, management projected global sales to decline in the range of 5% to10%, whereas comps are anticipated to decrease between 7% and 12%. Both hardware and software sales are expected to decline nearly 15% to 20% in fourth-quarter fiscal 2016. The company expects pre-owned revenues to decrease roughly 2% to 4% year over year while Tech Brands sales are estimated to surge above 35%. The fourth-quarter earnings per share are expected to be in the range of $2.23 to $2.38.

The current Zacks Consensus Estimate for fourth-quarter and fiscal 2016 stands at $2.35 per share and $3.72 per share, respectively.

Zacks Rank

At present, GameStop carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the retail sector are Best Buy Co., Inc. BBY and The Children's Place, Inc. PLCE. Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Best Buy has reported positive earnings surprise in the trailing four quarters, with an average beat of 25.7% and has an impressive long-term earnings growth rate of 11.4%.

Shares of The Children’s Place have gained more than 21% in the past three months and have an impressive long-term earnings growth rate of 36.3%.

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