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GameStop Plunges on Lower Guidance

Zacks Equity Research

Shares of GameStop Corp. (NYSE:GME) plunged roughly 20% yesterday on lowered earnings outlook as demand for Microsoft Corp.'s (NASD:MSFT) Xbox 360 and Sony Corp.'s (NYSE:SNE) PlayStation 3 software was soft during the holiday period. This resulted in a 22.5% drop in the videogame retailer’s new software category sales.

This Grapevine, Texas based company now projects fourth-quarter earnings between $1.85 and $1.95 and fiscal-year 2013 earnings in the band of $2.96 to $3.06 per share. The guidance provided fell short of the current Zacks Consensus Estimate of $2.14 and $3.24 for the fourth quarter and fiscal 2013, respectively. Also, this was enough to hurt investors’ sentiment.

Earlier, this Zacks Rank #3 (Hold) stock had forecasted fourth-quarter earnings in the range of $1.97 to $2.14 and fiscal-year 2013 earnings between $3.08 and $3.25 per share. In the coming days, we could witness a downtrend in the Zacks Consensus Estimate and a revision in the Zacks’ Rank.

GameStop said that global sales during the nine-week holiday period ended Jan 4, 2014 increased 9.3% to $3.15 billion. Total comparable-store sales rose 10.2%, portraying an increase of 7.1% at the U.S. and 17.4% at international locations buoyed by new video game console sales, including Xbox One and PlayStation 4 that fueled a 99.8% surge in new hardware sales.

GameStop, which competes with Amazon.com Inc. (NASD:AMZN), now envisions comparable-store sales for the fourth quarter and fiscal 2013 to dovetail with the upper end of the previously provided guidance range. The company had predicted comparable-store sales to increase by 2% to 9% during the fourth quarter and by 1.5% to 4.5% during the fiscal year.

The pre-owned category jumped 7%. Management now anticipates gross margins for the pre-owned category in the range of 46% to 49% for the fourth quarter and the fiscal year. The Other category sales climbed 4.8%. Within this category, digital receipts increased 14.9% to $207.3 million, while mobile sales rose 23.8% to $94.8 million.

GameStop’s worldwide sales through mobile, web-in-store, pick-up at store and ecommerce surged 57%. Sales via mobile site jumped 47%, web-in-store and pick-up at store sales together escalated over 120%, while sales through the company’s website grew 37%.

The operator of 6,488 stores repurchased 800,500 shares at a price $49.39 per share, aggregating $39.5 million during the holiday period. The company informed that at the end of the holiday period, it still had the authorization to buy shares worth $467.1 million.

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