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Balanced View of GameStop

Zacks Equity Research

We issued an updated research report on GameStop Corp. (GME) following the video game and entertainment software retailer’s first-quarter fiscal 2014 results.

The company posted earnings of 59 cents a share that came a couple of cents ahead of the Zacks Consensus Estimate and surged 28.3% from 46 cents delivered in the year-ago quarter. However, this Grapevine, TX-based company reiterated its fiscal 2014 earnings between $3.40 and $3.70 per share.

Total net sales increased 7% year over year to $1,996.3 million but missed the Zacks Consensus Estimate of $2,024 million. Comps grew 5.8% year over year for the third successive quarter.

Sturdy demand for Microsoft Corporation’s (MSFT) Xbox One and Sony Corporation’ s (SNE) PlayStation 4 led to the year-over-year increase in net sales and comparable-store sales. Moreover, strength witnessed across the mobile business also supported the top-line growth. Management now envisions comps to increase between 12% and 19% for the second quarter and in the band of 6% to 12% for fiscal 2014.

Sales of PlayStation 4 and Xbox One hardware in the U.S. have risen over twofold when compared with sales of PlayStation 3 and Xbox 360 hardware taken together, since the launch of products.

GameStop continues to branch out and has evolved as a mixed retailer of physical and digital gaming as well as electronics products. The company’s venture in digital, iDevice and gaming tablet businesses will be accretive to its results. The company’s buy-sell-trade model of selling new games and buying back used games and PowerUp Rewards program make it a popular destination for shopping.

However, GameStop is not devoid of competition. With the entrance of retail bigwigs, video game shoppers now have many alternatives from where they can buy software, hardware, and game accessories for video game systems and personal computers. These larger retailers could dent the company’s sales and margins.

Zacks Rank

The pros and cons embedded in the stock are well supported by GameStop’s Zacks Rank #3 (Hold). Another stock worth considering in the retail sector is Aaron's, Inc. (AAN) holding a Zacks Rank #2 (Buy).

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