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GameStop's Holiday Sales Rise, Soft View Hurts the Stock

Zacks Equity Research

The reflection of GameStop Corp.’s GME robust holiday sales results was not visible in the stock performances. Shares of this Grapevine, TX-based plunged more than 11% on Jan 12. Market experts pointed that the company’s updated fiscal 2017 earnings view came below analyst expectations giving investors cold feet.

The dismal run in the bourses led the stock to decline 4.8% in a month, against the industry’s growth of 7.7%.

Let’s Take a Close Look

The company generated total global sales of $2.77 billion for the nine-week holiday period ended December 30, 2017, up 10.6% year over year. Comps increased 11.8%, reflecting a gain of 13.7% in the United States as well as 7.9% internationally. Management pointed that sturdy holiday performance was driven by rise in sales of Nintendo Switch and Xbox One X. Moreover, collectibles business was also strong during the period.

New hardware sales jumped 38.8% due to robust demand for the Nintendo Switch as well as Xbox One X. New video game software sales rose 7.3% primarily due to Activision’s Call of Duty: WWII and Nintendo Switch titles. Pre-owned sales fell 8.1%, while video games accessories sales advanced 33.7%.

Now let’s take a look at non-physical gaming business performance during the holiday period. Collectibles sales surged 19.1% to $211.3 million on account of robust performances across apparel and toys. However, Technology Brands revenues declined 18.6% due to shortage of iPhone 10 supply and AT&T changes to compensation structure in 2017. However, digital sales and non-GAAP digital receipts surged 36.7% and 6.7%, respectively.

Outlook

Management stated that given the product category sales mix during the festive season, it now anticipates adjusted earnings per share for fiscal 2017 near the middle of its earlier provided guidance range of $3.10-$3.40. The updated guidance gives an indication that the company’s earnings will be nearly $3.25 per share below the Zacks Consensus Estimate of $3.32.

Comparable sales for the full year are expected to rise in the range of 4-6%. Moreover, the company continues to expect Technology Brands adjusted operating earnings in the range of $75 million to $90 million for fiscal 2017.

Apart from GameStop, other retailers such as Urban Outfitters URBN and Kohl’s Corp. KSS registered sales growth of 3.6% and 6.9%, respectively, during the November-December period, while both J. C. Penney JCP    and Target TGT recorded comparable store sales growth of 3.4%.

GameStop currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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