GameStop Rallies On Renewed Takeover Chatter

Shares of GameStop Corp. (NYSE: GME) rallied more than 4% Tuesday on renewed speculation that the company could be a takeover target. Stay tuned for more.

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GameStop Corp. (NYSE: GME): Q4 Earnings Preview 2010

GameStop Corp. (NYSE: GME), the world's largest video game retailer, is scheduled to release fourth quarter earnings before the opening bell on Thursday, March 24, 2011. Analysts, on average, expect the company to report earnings of $1.56 per share on revenue of $3.71 billion. In the year ago quarter, the company reported earnings of $1.29 per share on revenue of $3.52 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. GameStop's retail network and family of brands include 6,606 company-operated stores in 17 countries worldwide, www.Kongregate.com, a leading browser-based game site with more than 10 million monthly unique visitors, and Game Informer(R) magazine, the leading multi-platform video game publication. The used game business is the biggest source of GameStops’ profits and is a high margin business.

In the preceding third quarter, the Grapevine, Texas-based company's net income was $54.71 million or $0.36 per share, compared with a profit of $52.23 million or $0.31 per share in the prior-year period. Excluding debt retirement costs, earnings per share for the third quarter were $0.38. Revenue increased 3.5% to $1.90 billion from $1.83 billion last year. Analysts, on average, expected the company to report earnings of $0.37 per share on revenue of  $1.95 billion.

At its last earnings call in November, GameStop forecast fourth-quarter earnings per share in a range of $1.53-$1.59, representing an increase of 19% to 23% over the prior-year quarter. The company said that it expects comparable store sales for the quarter to range increase 2.0% to 4.0%.

GameStop also raised its fiscal 2010 earnings per share outlook to a range of $2.63-$2.69 from the prior range of $2.58-$2.68. The revised outlook represents a 16%-19% increase over the prior year. However, the company maintained its full-year comparable store sales guidance range of flat to up 2%.

The company has benefited from strong holiday season. The holiday period is important for the video game industry, with companies bringing in as much as 40 percent of their annual revenue in November and December.In January, GameStop reported record sales results for the nine-week holiday period ended January 1, 2011. Total sales for the period were $3.02 billion, a 5.4% increase as compared to the 2009 holiday sales period, with comparable store sales increasing 3.4%. GameStop also produced 32% growth in gift card sales in December. The company also reaffirmed its previously announced fourth quarter and full year 2010 earnings per share guidance. Paul Raines, Chief Executive Officer, commented, "GameStop exceeded its holiday sales plan based on the strength in Kinect hardware and new software sales driven by core titles. Tony Bartel, President, added, "Over the holiday, GameStop reaped the benefits of its investment in e-commerce. GameStop.com sales rose more than 100% versus last year, far outpacing online industry growth during the period, remaining the fastest growing website in the video game space."

CEO Paul Raines said in January that Kinect sales would continue to be strong this year and that Sony's marketing for its motion-sensor controller the Move, as well as new games like Electronic Arts' "Tiger Woods PGA Tour 12" focusing on the Masters golf tournament, would sustain the momentum of motion-sensor gaming. The companyt expects Nintendo's 3DS, a handheld device scheduled to be launched in the United States in late March, to be a hit.

GameStop has faced increasing competition with used game trade-in programs at competitors like Amazon.com (NASDAQ: AMZN), Best Buy (NYSE: BBY) and Wal-Mart Stores Inc (NYSE: WMT), as well as a growing digital distribution model favored by publishers. The recent technological advancements has made the gaming industry highly aggressive as the buyers now have multiple options to obtain video game accessories and softwares for gaming systems and computers. 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. Companies like Activision (NASDAQ: ATVI) and Electronic Arts (NASDAQ: ERTS) are in the process of trying to cut out the middleman with direct downloads that will allow customers to buy the game online or through a gaming system. 

During the quarter in review, the company's Board of Directors authorized $500 million in additional funds for its share and debt repurchase program. This authorization replaced the $300 million plan announced in September 2010.

The company's stock currently trades at a forward P/E (fye 30-Jan-12) of 7.22 and PEG Ratio (5 yr expected) of 0.60. In terms of stock performance, GameStop shares are up nearly 6% over the past year.

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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.

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GameStop Corp. (NYSE: GME): Third Quarter Earnings Preview 2009

GameStop Corp.(NYSE: GME) is scheduled to release its third quarter financial results before the market open on Thursday, November 19, 2009. Analysts currently expect the company to report earnings of 30 cents per share on revenue of $1.73 billion. In the year ago period, GameStop reported earnings of 38 cents a share on revenue of $1.70 billion.

GameStop Corp. is the world's largest video game retailer. It 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. As of January 31, 2009, GameStop Corp. operated 6,207 stores primarily under the names GameStop and EB Games that are located in regional shopping malls and strip centers in the United States, Australia, Canada, and Europe.

In August, the Grapevine, Texas-based company reported that its second-quarter profit plunged 32.3% due to lower new console unit sales and a lack of strong new software titles. Second-quarter net income declined to $38.7 million, or 23 cents per share, from $57.2 million, or 34 cents, in the prior-year quarter. Quarterly sales slipped 3.7% to $1.74 billion from the previous year's sales of $1.80 billion. Analysts, on average, expected the company to report earnings of 28 cents per share on revenue of $1.75 billion for the quarter.

Despite gaining over 200 basis points in new video game market share during the quarter, comparable store sales fell 14.1%. Gross margins increased by 170 basis points, as product mix shifted from low margin hardware sales to higher margin software sales. Early in November, the company reaffirmed its earnings forecast for the third quarter in a range of 27 cents to 33 cents per share, excluding debt retirement costs of $0.01 per share. The company also maintained its forecast for comparable store sales for the third quarter to decline in a range of 6% to 11%.

For the fourth quarter, the company anticipates earnings in a range of $1.47 to $1.65 per share, higher than $1.39 posted in the prior-year fourth quarter. Comparable store sales are projected to decline between 1.0% and 7.0%. For full year 2009, the company expects earnings to range between $2.40 and $2.64 per share, with a comparable store sales decline of 4.0% to 8.0%.

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. During the second quarter, used video game products accounted for 32.3% of the company's total sales. Though overall video game industry could not escape unscathed from recession, sales of used video game witnessed unprecedented growth as bargain-hunting consumers slashed entertainment spending. During second quarter, sales of used video game products at GameStop surged to $560.8 million from the previous year's sales of $471.5 million.

The company is also expected to benefit from the release of highly-anticipated title releases such as Call of Duty: Modern Warfare 2, Assassin's Creed 2 and Halo 3: ODST during the third quarter. Activision’s brand-new Call of Duty 2: Modern Warfare, which hit store this week, shattered the previous record for opening-day sales by an entertainment property, earning $310 million in North America and the U.K. alone. Moreover, recent industry hardware price cuts too are expected to boost overall video game sales. Console makers Sony (NYSE: SNE), Microsoft (NASDAQ: MSFT), and Nintendo all slashed the prices of their systems by $50 to $100 in third quarter.

GameStop has continued with its aggressive worldwide expansion plans and expects to open between 75 and 100 stores with a goal of around 400 new stores for the year. During the quarter, GameStop opened 110 new stores with a goal of around 400 new stores for the year. Late last month, GameStop announced plans to hire about 15,000 seasonal part-time game advisers between now and December 24, 2009, in order to manage the upcoming holiday rush.

U.S. video game industry sales dropped in October, declining 19 percent from a year earlier, and 16.4 percent from September, according to data released by the NPD Group. Though the $1.07 billion in total sales turned in by the industry in October were paltry, compared with $1.32 billion in October 2008 and $1.28 billion in September 2009, it was still the third-best October sales report turned in by the video game industry, NPD analyst Anita Frazier noted in her monthly report.

Investors are expected to focus on management's commentary about holiday sales outlook and store traffic expectations. The Friday after the Thanksgiving holiday marks the start of the crucial holiday shopping period. Video game industry rakes in close to two-thirds of their annual revenue during holiday season.

In terms of stock performance, GameStop shares have gained 2% since the beginning of the year. Shares of the company fell 93 cents or 3.78% to close at $23.69 on Friday.

Full Disclosure: None.