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GameStop's Sales Decline

Zacks Equity Research

GameStop Corporation (GME) bore the brunt of weak traffic and lack of significant game title launches, which was well evident in its dismal first quarter 2012 sales numbers.

The video game and entertainment software retailer came out with its first quarter 2012 sales and earnings figures ahead of its scheduled date.  GameStop reported earnings of 54 cents a share, a penny ahead of the Zacks Consensus Estimate, but 4% lower than the comparable prior-year quarter. Reported earnings were also near the higher end of the company’s guidance range of 52 cents to 55 cents.

The results were impacted by significantly weaker revenues, as evident from the 12.5% decline in its same-store sales, in contrast to the company’s expectation of a decline of 9.5% to 7.5%.   

The NPD Group, a market research firm, confirmed the continuing slump in the video game industry as it stated that U.S. sales for April 2012 were down 32% from the comparable period of the previous year.

Amid this gloom, the company stood by its earlier guidance and expects earnings of $3.10 to $3.30 per share in fiscal 2012, reflecting an increase of 8% to 15% over the last fiscal. GameStop is slated to report its first-quarter 2012 results on May 17.

Despite secular headwinds, we believe that the company is well positioned to drive sales in the long run. The company holds a significant position in the used video game products market, which has been resilient in this downturn.

Moreover, the company’s venture in digital, iDevice and gaming tablet businesses would be accretive to its results. GameStop’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.

Currently, we have a long-term Neutral rating on GameStop. Moreover, GameStop, which faces stiff competition from Amazon.com Inc. (AMZN), holds a Zacks #3 Rank, which translates into a short-term Neutral recommendation.

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