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Factors Likely to Influence GameStop's (GME) Q1 Earnings

Zacks Equity Research

GameStop Corp. GME is scheduled to release first-quarter fiscal 2019 results on Jun 4. This provider of software, hardware and game accessories has a mixed earnings surprise record. Let’s see what’s in store for the company this time around.

What to Expect?

The Zacks Consensus Estimate for earnings in the first quarter has remained stable in the past 30 days at a loss of 1 cent, against earnings of 38 cents reported in the year-ago quarter. The consensus mark for revenues is $1,665 million, implying a decline of 13.9% from the year-ago quarter’s reported figure.

GameStop Corp. Price and EPS Surprise

GameStop Corp. Price and EPS Surprise

GameStop Corp. price-eps-surprise | GameStop Corp. Quote

Factors to Note

GameStop has been struggling with dismal trends at its pre-owned business on account of launch of fewer titles, decrease in physical software sales, muted demand owing to digital access to older titles and fewer promotions offered to customers. We note that decline in pre-owned software and hardware businesses weighed on the company’s results in fiscal 2018, and also remains a concern for the quarter to be reported.

On the brighter side, GameStop is likely to receive some respite from strength in its collectibles sales category. This in turn is being driven by consistent growth in domestic and international collectibles businesses. The company has been focused on strengthening this unit by widening its global footprint in video game stores and e-commerce platforms.

However, strength in collectibles and other endeavors may not be enough for GameStop to offset hurdles in the quarter to be reported. We note that the company has witnessed year-over-year contraction in the gross margin for quite a few quarters. This can also be somewhat attributable to lower pre-owned sales and margins along with unfavorable mix shifts. Persistent gross margin declines clearly pose threats to GameStop’s profitability. In fact, the company guided its bottom line in the bracket of breakeven to a loss of 5 cents for the first quarter.

What the Zacks Model Unveils

Our proven model doesn’t show a beat for GameStopthis earnings season. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GameStop carries a Zacks Rank #5 (Strong Sell), which along with its Earnings ESP of 0.00% makes us less confident of an earnings beat. Notably, we caution against Sell-rated (Zacks Rank #4 or 5) stocks going into earnings announcement.

Stocks Poised to Beat Earnings Estimates

Abercrombie & Fitch ANF has an Earnings ESP of +0.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dollar General DG has an Earnings ESP of +2.13% and a Zacks Rank #2.

Costco COST has an Earnings ESP of +2.10% and a Zacks Rank #3.

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