Friday, March 12, 2010

GameStop Corp. (NYSE: GME): Q4 Earnings Preview 2009

GameStop Corp. (NYSE: GME), the world's largest video game retailer, is scheduled to release financial results for the fiscal fourth quarter before the market open on Thursday, March 18, 2010. Analysts, on average, expect the company to report earnings of $1.28 per share on revenue of $3.45 billion. In the year ago quarter, the company reported earnings of $1.34 per share on revenue of $3.49 billion.

GameStop Corp. sells new and used video game hardware; video game software; video game accessories, including controllers, memory cards, and other add-ons; PC entertainment software etc. The company operates 6,457 retail stores in 17 countries worldwide. The company also operates an e-commerce site,, and publishes Game Informer(R) magazine, a leading multi-platform video game publication. GameStop Corp. sells new and used video game software, hardware and accessories for video game systems from Sony, Nintendo, and Microsoft. GameStop dominates the lucrative used-game market. The video game retailer's gross profit margin for used games is nearly 50 percent, compared to around 20 percent for a new game sale.

In the preceding third quarter, the Grapevine, Texas-based company reported that its net income increased to $52.23 million or $0.31 per share from $46.67 million or $0.28 per share in the year-ago quarter. Revenue increased 8.2% to $1.83 billion from $1.70 billion in the year-ago period. Analysts, on average, expected the company to report earnings of $0.30 per share on revenue of $1.73 billion.

Despite gaining over 150 basis points in new video game market share during the quarter, GameStop's comparable store sales plunged 7.8% in the third quarter, primarily due to a decline in new video game hardware sales.

The economic slump and free games on social networking sites such as Facebook and MySpace from companies such as Zynga Game Network Inc. have hurt demand at video-game retailers. Moreover, there are concerns that GameStop’s model may be in trouble with the possibility of digital downloads grabbing an every larger slice of market share. Sales of video game gear and software in the United States slid 15 percent in February in their second straight monthly decline, but should bounce back starting in March on the back of new releases according to industry tracker NPD. In January, sales of video games, consoles and accessories fell 13 percent to $1.17 billion, according to NPD Group Inc.

In January, the company reported a 8.6% decline in comparable store sales for the November-December nine-week holiday period due to economic weakness in all global operating segments, winter storms at peak shopping periods in December, and unexpected shortages of key products such as New Super Mario Bros. Wii, Nintendo Wii and Sony's PlayStation 3 consoles. Total sales for the nine weeks ended Jan. 2 were about flat with a year earlier at $2.86 billion. The company also slashed its earnings forecast for the fourth quarter and the full year 2009. GameStop expects to report fourth quarter earnings in a range of $1.25 to $1.29 per share, down from its prior guidance of $1.47 to $1.65 per share.The company also anticipates comparable store sales for the fourth quarter to decline in a range of 8.5% to 9.5%. Earlier, the company expected a decline of 1.0%.

For fiscal 2009, the company now expect earnings in the range of $2.23 to $2.27 per share, sharply lower than the previous outlook of $2.45 to $2.63 per share.

In fourth quarter, the company authorized a $300 million stock buyback plan. GameStop said that its capital allocation plans also include $200 million for opening 400 stores and other expenditures. GameStop also said it would reserve $100 million for acquisitions. The firm said that it expects to end the 2010 fiscal year with $700 million in cash after it executes the new plans for its money.

Shares of the company surged on Thursday and trading of its bullish options jumped to a record on speculation that the company is a takeover target. GameStop declined to comment on the rumors.

The company's stock currently trades at a forward P/E (fye 31-Jan-11) of 7.44 and PEG Ratio (5 yr expected) of 0.67. In terms of stock performance, GameStop shares are down 28% over the past year.

Full Disclosure: None.

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