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Longbow Lowered GameStop Estimates Following 'Lackluster' April Industry Sales

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In a report published Friday, Longbow Research analyst James Hardiman lowered estimates on GameStop (NYSE: GME) following “lackluster” April sales number for the U.S. video game industry.

Prior to the April sales numbers, Hardiman estimated an eight to 10 percent increase to sales due to the Easter shift. Adjusting for the Easter headwind, the analyst expected software sales to be down 18 to 20 percent, which would equal the March decline.

On Thursday, the NPD group reported that packaged goods software sales were down 10 percent year-over-year on a dollar basis and 13 percent year-over-year on a units basis, in-line with Longbow's estimates. Hardware sales grew 75 percent on a dollars basis and Electronic Arts's Titanfall was the number one title for April, for the second month in a row.

Longbow wrote, “As much as the ongoing declines in last-gen software sales have been blamed for the continuing declines in packaged goods software numbers, we believe that an equal (if not greater) portion of the blame can be attributed to the growing significance of full-game digital downloads. If we are right, the hope among certain investors that this problem will take care of itself once the share of new-gen software overtakes last-gen software is very much misplaced.”

Hardiman added that as new-gen software becomes more appealing, full-game digital downloads will become “more significant and devastating” to packaged good retail.

The analyst lowered first quarter EPS estimate from $0.59 to $0.56 versus the Street's $0.57. Longbow sees GameStop's hardware up 85 percent in the quarter, used products up seven percent, new software to be down 17 percent and digital revenues coming in flat.

Hardiman maintained an Underperform rating and $30.00 price target on GameStop.

Shares of GameStop closed at $36.22 on Friday, up roughly one percent.

Latest Ratings for GME

DateFirmActionFromTo
Jan 2015Pacific CrestUpgradesUnderperformOutperform
Jan 2015Credit SuisseMaintainsNeutral
Nov 2014Bank of AmericaMaintainsBuy

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