GameStop Earnings Two Cents Ahead of Ests - Analyst Blog

GameStop Corp. GME, a video game and entertainment software retailer, posted first-quarter fiscal 2014 earnings of 59 cents a share that came a couple of cents ahead of the Zacks Consensus Estimate and surged 28.3% from 46 cents delivered in the year-ago quarter.

Total net sales increased 7% year over year to $1,996.3 million but missed the Zacks Consensus Estimate of $2,024 million. Comps grew 5.8% year over year for the third successive quarter.

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

Sales of PlayStation 4 and Xbox One hardware in the U.S. have risen over twofold when compared with sales of PlayStation 3 and Xbox 360 hardware taken together, since the launch of products.

Despite top- and bottom-line growth, shares of this Zacks Rank #3 (Hold) stock increased only by 3% during after-market trading hours as investors were cautious on the sales performance that came below analysts' expectations.

By sales mix, new video game hardware sales grew 81.1% to $438 million due to robust demand of PlayStation 4 and Xbox One hardware while new video game software sales decreased 20.4% to $559.9 million, reflecting fewer launches of AAA titles. Pre-owned video game products sales rose 5.3% to $602.9 million due to improved inventory levels of new consoles leading to higher sales. Sales in the other category declined 19.3% to $92.1 million due to fall in PC entertainment software sales.

Video game accessories sales surged 14.8% to $145.1 million whereas sales in the digital category fell 0.2% to $56.1 million. On the other hand, mobile and consumer electronics sales doubled to $102.2 million attributable to the contributions of Simply Mac and Spring Mobile. Digital receipts grew 9.5% to $189.7 million during the quarter.

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.

During the quarter, gross profit increased 8.3% to $626.4 million due to healthy top-line growth, partly offset by increased cost of sales. Gross margin expanded 40 basis points to 31.4% due to sturdy pre-owned value gaming and technology brands margins. Operating income soared 21.4% to $105.9 million, whereas operating margin increased 60 basis points to 5.3%.

Other Financial Aspects

GameStop, which competes with Best Buy Co., Inc. BBY, ended the quarter with cash and cash equivalents of $208.9 million, net receivables of $86 million and shareholders' equity of $2,267.2 million.

During the quarter, GameStop bought back 1.33 million shares worth $52.2 million. The company still has $405 million at its disposal under its share repurchase authorization.

GameStop declared a quarterly dividend of 33 cents a share to be paid on Jun 17, 2014, to stakeholders of record as of Jun 4, 2014.

Store Update

GameStop, at the end of the quarter, operated 6,680 outlets, comprising  4,215 U.S. video game stores, 2,195 international video game stores and 270 technology brand stores. The company acquired 36 technology brand stores and opened 16 additional stores. The company also opened 6 video game outlets and shuttered 40 stores in the U.S., and opened 5 and closed 18 stores internationally.

Strolling Through Guidance

Management now forecasts second-quarter fiscal 2014 total sales growth of 14% to 22% and comps increase between 12% and 19%. Earnings are projected to be in the band of 12 to 20 cents per share.

For fiscal 2014, GameStop expects comps to increase in the range of 6% to 12%. Earnings are reiterated between $3.40 and $3.70 per share.

The current Zacks Consensus Estimate for the second quarter and fiscal 2014 stand at 19 cents and $3.66 per share, respectively.