Ok, so prior to Q2 earnings release I put together an earnings estimate based on Q1 vs Q2 NPD numbers and historical profit margins for Gamestop in each product category. I came out with a figure of 33.9 cents per share, which was extremely close to the 34c reported.
I plugged similar numbers in for Q3 vs Q2 to get an idea of what to expect from Q3 earnings and came out with 30.9 cents per share.
The NPD numbers in question are:
Hardware Software Accessories
May 428.6 536.9 150.8
Jun 615.1 872.6 202
Jul 446.9 591.1 149.1
TOT 1490.6 2000.6 501.9
Hardware Software Accessories
Aug 394.53 550.67 137.33
Sept 498 616 152.6
Oct 494.74 696.79 120.19
TOT 1387.27 1863.46 410.12
This figure does not take into account the devalution of other currencies against the US dollar over the Q3 period (eg. EUR/USD cross rate has dropped from 1.5 to 1.25 over this period) which will likely negatively impact earnings but to what extent I can't say.
I'm not claiming these numbers will be bang. There are plenty of other factors that I haven't accounted for. But I'm pretty sure we won't see anything like the 37 cents per share analyst consensus being reported. I also think it's likely we'll have negative growth vs Q3 2007 which was 33c per share.
Anyone else have an estimate of what we will see for Q3, or opinions of how the market will react to earnings in the 31c range?
Although you might be right in general on how the macroeconomic factors are drowining out everything else that actually matters to GME, I do believe there is one major catalyst coming up:
the November NPD results which will come out in December, and then the Dec NPD results which will come out in January.
Q3 will likely suffer from the Halo 3 comparison, but there will be no excuses for Q4, and no excuses will be needed.
Micromania Purchase is to be complete in November '08; EPS Growth = 25% in fiscal '09.Link below:
Good luck Longs, RB.
"Most important will be guidance--based on November sales to date, pre-orders and how much management wants to underpromise, overdeliver.
I think they'll use the strong growth in consoles as reason for optimism that households are truly investing in 09 video game entertainment. you don't dish out a few hundred bucks for a console during a financial crisis unless you plan on buying games for it in the upcoming year."
Excellent points. Over the last few years, guidance has played a bigger buying or selling incentive then the quarters Revenue/ Profits. GTI is a good example . They recently beat their Esps, but because of economic concerns lowered their forward guidance. This, and Market conditions has creamed their PPS. It appears to be a nicely run company with good fundamentals, but that didn't mean a thing to the traders/investors.
I've seen this happen over and over again, so I would be more concerned with guidance then GME's quarterly numbers.
I'm still waiting for GME to close the Micromania Acquisition. With the Bank American loan they have just announced, it should be soon. Management did say that they expected it to go through in Nov. I hope there isn't any glitches. I'm not expecting any.
I'm hoping that Micromania will be the key to good guidance going forward, along with the good NPD numbers in Oct.
Unfortunately, with this corrupt and manipulative Market, who knows what will happen tomorrow with the best of scenarios.
It seems unlikely that GME will hit the analyst consensus of 1.82B in sales for the quarter. I base this on a simple calculation:
Total NPD sales for the quarter are 3.66B. GME has never had more than 47% of total NPD. 47% of 3.66B is 1.72B. This is admittedly quite rough, but it will be hard to reach 1.82B given total sales of 3.66B.
Of course, 1.7B is still quite good, showing significant growth year over year when you account for the anomalous quarter with huge revenue from Halo 3. Unfortunately, it seems that analysts are not taking this into account in their projections (i.e. 1.82B in revenue seems very high given a broader perspective of sales trends).
To predict earnings, I looked at net margins. The net margins in recent quarters (excluding the holiday quarter) has been around 3.2%. The same margin on 1.7B of revenue would give us about 54.4M in earnings, or 33 cents. I hope I'm wrong and that there's either a jump in sales or in margins, but that's my best estimate.
The outlook should be strong as games have proven their ability to grow despite macroeconomic conditions, and the installed base of consoles keeps growing. I am confident that the stock price will catch up with this outlook at some point.
Could you please post what you anticipate GME's sales to be for Q3 and the breakdown you get by product category (ie, hardware, new software, used, other--as GME breaks it down in their financials)?
I want to use your sales estimates and compare to the financials myself. Also curious how you convert sales to earnings--I'm assuming you just go by the analyst estimates (from low to high range of sales compared to analysts low to high range of earnings).
I'll try to tinker with the numbers myself, and try to account for the increase in stores from Q2 to Q3.
if you have the time, I appreciate the numbers. too bad you can't just cut&paste spreadsheets here.
I'm still thinking about your calculations...the toughest part here is to gauge what analysts are really expecting from GME, in light of the massive drop in stock price, which you'd think has priced in doom and gloom. Of course, much of the sell-off was simply liquidation of funds, since this stock has so much institutional ownership. Also, I figure the doom and gloom from the September comps has also been factored.
So the big thing that sticks out to me is that October was so damn good, and such a big surprise--huge Wii sales, and excellent software sales, even though the strongest line-ups are in Nov-Dec. I'd think the stock has not yet discounted the good news from October and the implications the strong hardware sales have for Xmas and 09.
As for the actual estimates you draw...I think the big question mark is used games. We can assume they stayed constant as a percentage of margins, but who knows. Also, you need to factor in whatever increase in stores they had, improved same-store sales, increased economies of sale, and lower costs of distribution from lower energy prices (all factors in favor of stronger earnings). Also, the NPD is only for the US, when Canada is growing much faster (the second biggest market for GME) and European gaming market seems to be growing faster than the US as well. So that's up to ~20% of the stores getting a boost, even with a stronger dollar.
You assumptions are reasonable though, I'd just add more assumptions that have the effect of boosting earnings. But the markets, and GME, are not trading on fundamentals, but fear. And that creates a long-term buying opportunity. If you are confident in the long-term drivers of the industry and this stock, then it's a clear buy, regardless of whether earnings are .33 or .40. It's just been beaten senselessly.
Also, many think the liquidations and redemptions are through. Who knows....there aren't many buyers, but how many sellers are left? Perhaps some shorts who will get squeezed out. This morning was likely a mini-short squeeze. I think the stock might pop before earnings, by shorts taking profits. remember, the shorts are usually pretty smart, and there's no reason for them to get too greedy here. With the stock trading alongside the market, and the market tanking, does'nt seem worth it for the shorts to hang on past earnings.
Correction: I said that Canada is the second biggest market for GME...not true. Here's the breakdown of revenues from Q2. Keep in mind that we will have much more exposure in France now with the acquisition.
US: 73% of revenue
You appear to have forgotten the acquisitions after Q3 of 2007. Software has grown 5%, Software has grown around 36%. You also forgot to consider GME's used game profits, which (because of the economic climate) should be higher this year then last year. Remember, the NPD doesn't figure in Used Games, which is a big profit margin for GME.
Personally, because of those factors unrelated to the NPD numbers, I believe they will post over .40 per share. Of course, that is just a guesstimate, but your number also is.