GameStop Misses on Q4 Earnings - Analyst Blog

GameStop Corp. GME, the video game and entertainment software retailer, posted fourth-quarter fiscal 2013 earnings of $1.90 per share, which missed the Zacks Consensus Estimate of by couple of cents and fell 12% year over year. The initial hour of trading reflected investors' disappointment as the stock price declined.

Including certain one-time items, earnings came in at $1.89, down 12.1% year over year.

For fiscal 2013, adjusted earnings came in at $3.01 per share, a penny short of the Zacks Consensus Estimate and falling 5% year over year. Including one time items, earnings came in at $2.99 per share, sharply up from a loss of $2.13 reported in the last year.

Behind the Headlines

However, strong sales of Microsoft Corp's MSFT Xbox One and Sony Corp's SNE PlayStation 4 led to year-over-year increases in net sales and comparable-store sales (comps).

GameStop's total net sales grew 3.4% year over year to $3,683.8 million but missed the Zacks Consensus Estimate of $3,789 million.

Full-year net sales increased 1.7% year over year to $9,039.5 million. However, it missed the Zacks Consensus Estimate of $9,203 million.
 
For the quarter, comps increased 7.8% year over year.

By sales mix, new video game hardware sales grew 88% to $1,158.6 million while new video game software sales decreased 24.4% to $1,214.7 million. Pre-owned video game products sales fell 1.4% to $741.9 million while sales in other category declined 18.4% to $122.2 million.

Video game accessories sales fell 4.4% to $244.2 million whereas sales in digital category fell 5.4% to $66.1 million. However, mobile and consumer electronics sales registered a 24.6% rise to $136.1 million.

GameStop continued to branch out and is transforming itself 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.

During the quarter, gross profit increased 2.9% to $1,003.0 million due to robust top-line growth, partly offset by increased cost of goods sold. However, gross margin contracted 20 basis points to 27.2%, reflecting an expansion in cost of sales as a percentage of total net sales.

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $536.2 million, net receivables of $84.4 million and shareholders' equity of $2,251.4 million.

During the quarter, GameStop bought back nearly 1.04 million shares worth $49.5 million, bringing the total share repurchases for fiscal 2013 to 6.28 million shares worth $258.3 million.

For fiscal 2014 up to March 20, GameStop has repurchased 555,200 shares, totaling $20.6 million.

For fiscal 2013, GameStop disbursed $131 million as dividends. Also, on March 4, 2014, GameStop declared a 20% hike in its annual dividend to $1.32 from $ 1.10 per share. On March 25, the company paid the increased quarterly dividend of 33 cents.

Strolling Through Guidance

With setting up of a new business division and renewed vigor in video game category, GameStop expects stronger growth prospects going ahead.

Management now forecasts first-quarter fiscal 2014 total sales to increase 7%–10% and comps to increase 5%–8%. Earnings are projected to be in the band of 55 to 60 cents per share. Operating margin is expected to grow in the range of 5%–5.5%.

For fiscal 2014, GameStop now expects total sales to rise by 8% to 14%. Comps are expected to grow in the range of 6% to 12%. Earnings are now expected to be in the range of $3.40–$3.70 per share. Operating margin is expected to grow in the range of 6.5%–7.0%.

The current Zacks Consensus Estimate for the first quarter and fiscal 2014 stands at 53 cents and $3.02 per share, respectively.

Moreover, the company plans to close 2% of its outlets in 2014.

Currently, GameStop carries a Zacks Rank #4 (Sell).