Getting Ready For GameStop's Q2 Earnings Report

Previewing GameStop Corp. GME's fiscal year second quarter results due after the market close Thursday, Loop Capital Markets said it is optimistic about top-line trends, given the recent industry results.

The firm clarified that NPD U.S. video game industry results for the corresponding calendar year period were stronger than expected, with a 21 percent increase in console hardware and a 3-percent increase in accessories but a 3-percent decline in console software.

Accordingly, the firm said its upwardly revised second quarter earnings per share estimate of 18 cents was 2 cents per share above the consensus estimate.

As such, Loop Capital Markets reiterated its Buy rating and a $28 price target on the shares of GameStop.

At the time of writing, shares of GameStop were rallying 1.53 percent to $21.30.

See also: Not Playing Around: Video Game ETF Is On A Tear

Giving the assumptions behind his second quarter earnings per share estimate for GameStop, analyst Anthony Chukumba listed the following:

• 3 percent comps growth, driven by strength in new video game hardware as the Nintendo Co., Ltd (ADR) NTDOY Switch continued to sell like hot cakes.
• A 10 basis-point year-over-year gross margin decline.
• A 100 basis-point increase in SG&A expense as a percent of net sales, as high cost-structure technology brands continue to grow.

Loop Capital Markets said investors are likely to focus on the core video game business, including whether the Nintendo Switch continued to drive better-than-expected results.

Additionally, the firm feels investors would be keen to know about the Technology Brands due to its underperformance in the first quarter and the management's efforts to realign the business to focus more on selling AT&T Inc. T's non-wireless offerings.

"Lastly, we think investors will be interested in the performance of collectibles, which have continued to grow at a rapid pace over the past several quarters," the firm added (see his track record here).

For 2017, the firm expects earnings per share of $3.47, about 14 cents above the consensus estimate.

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