Tuesday, May 18, 2010

Gamestop (NYSE: GME): Q1 Earnings Preview

Gamestop (NYSE: GME), the world's largest video game retailer, is scheduled to release financial results for the first quarter before the market open on Thursday, March 20, 2010. Analysts, on average, expect the company to report earnings of 47 cents per share on revenue of $2.03 billion. In the year ago quarter, the company reported earnings of 43 cents per share on revenue of $1.98 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, GameStop.com, 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 fourth quarter, the Grapevine, Texas-based company reported that its net income fell to $215.92 million or $1.29 per share, compared with $232.33 million or $1.39 per share in the prior-year period. Revenue increased 0.9% to $3.52 billion from $3.49 billion in the fourth quarter of the previous year. Analysts, on average, expected the company to report earnings of $1.28 per share on revenue of $3.45 billion.

For the first quarter of fiscal 2010, GameStop expects earnings for the quarter to be between $0.46 and $0.48 per share, a 7% to 12% increase from the previous year. The company also estimates comparable store sales to range from negative 3.0% to breakeven, reflecting reduced hardware price points as compared to prior year. 

For fiscal 2010, based on current market trends, GameStop anticipates earnings to range from $2.58 to $2.68 per share, representing an annual increase of 14% to 18%. The company also expects total sales growth to be between 4% and 6%, and comparable store sales in the range of breakeven to 2%. Analysts currently expect earnings of $2.63 per share on revenues of $9.45 billion for the year.

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. Recently, market research firm NPD Group said that U.S. retail sales of video games plummeted 26 percent to $766.2 million in April from a year ago, its biggest decline in almost a year. NPD attributed the huge decline to the shift of Easter to March from April and lack of new game releases. It is the fourth largest monthly drop in industry's history.

In terms of stock performance, GameStop shares are down more than 16% over the past year.

Full Disclosure: None.
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