Does GameStop Stand A Chance Against Digital Downloads?
Estimize | May 26, 2016 01:14AM ET
GameStop Corp (NYSE:GME) Consumer Discretionary - Specialty Retail | Reports May 25, After Market Closes
Key Takeaways
- The Estimize consensus is calling for earnings of 62 cents per share on $1.95 billion in revenue, 1 cent higher than Wall Street on the bottom line and right in line on the top
- Increased competition and a transition toward digital downloads as put GameStop at risk in the near and future
- First quarter guidance expects total sales and comparable sales to decline as much as 7% and 9%, respectively
- What are you expecting for GME ?
Video game retailer, GameStop, is scheduled to announce first quarter results this Thursday, after the market closes. Despite the overall strength in the gaming industry, GameStop earnings have been quite volatile. Revenue has hovered around mid single digits to negative growth primarily due to weaker software sales, a transition to digital offerings, and increased competition. The combination of these factors should weigh down results as GameStop kicks off fiscal 2016
The Estimize consensus is calling for earnings of 62 cents per share on $1.95 billion in revenue, 1 cent higher than Wall Street on the bottom line and right in line on the top. Since the holiday season earnings estimates have fallen 11% while revenue has dropped 8%.
Year over year comparisons are now projecting a 9% decline in profitability with sales dropping as much as 5%. Despite poor earnings, the stock is a positive mover during earnings season, increasing 4% in the month following results. This should comfort shareholders who have withstood the 30% losses of the past 12 months.
GameStop’s biggest concerns have been increased competition and a shift in demand for digital offerings. Major video game publishers including Activision Blizzard Inc (NASDAQ:ATVI), Electronic Arts Inc (NASDAQ:EA) and Take-Two Interactive Software Inc (NASDAQ:TTWO) Interactive have all addressed digital downloads as a high growth area. As these companies transition away from physical games, retailers like GameStop should see sales fall.
Meanwhile, retail giants such as Wal-Mart (NYSE:WMT), Target Corporation (NYSE:TGT) and Best Buy Co Inc (NYSE:BBY) have all entered in the video game market. Between the two headwinds, GameStop has a rocky road ahead of themselves.
In its Q4 analyst call, first quarter and fiscal 2016 guidance was quite bleak. The first quarter is forecasted to see sales fall in range of 4 to 7%. Comparable store sales could fare even worse, predicted to fall between 7 and 9%. On the year however, best case has sals increasing 3% and flat comparable store growth. Additionally, the company expects new software sales to decline between 5 and 10%.
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