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How GameStop could bounce back after its epic sales miss

JP Mangalindan
Chief Tech Correspondent
GameStop’s saving grace this year may be Nintendo’s recently released Switch console.

GameStop’s (GME) shares plummeted more than 13% on Friday after it reported weak sales the day before, but Nintendo’s new Switch console may help the video game retailer turn things around.

In a research report out Friday, Mizuho Securities Director of Americas of Equity Research San Phan estimated that GameStop could boost its hardware sales growth by 15% — compared with the retailer’s guidance of flat to slight growth — if it sells just 2 million Nintendo Switch units during the retailer’s fiscal 2017.  

“We believe this would have a positive ripple effect on sales across multiple categories for GME: new SW [software], pre-owned, and accessories,” Phan wrote in the report.

On Thursday, GameStop reported fourth-quarter profits that surpassed analysts’ expectations but sales that fell short of forecasts. Global sales in the fourth quarter declined 13.6% year-over-year while same-store sales (sales at stores open at least a year) fell 16.3%; the retailer attributed the sales miss to a decline in video game hardware and software sales.

The retailer also said it expects to shutter between 2% to 3% of its stores worldwide — an unsurprising revelation given the larger overall transition to e-commerce.

Nintendo, in contrast, appears to be seeing something of a rebound, thanks to impressive early sales of its latest gaming console, the Nintendo Switch. In fact, the video game giant reportedly plans on doubling the number of Switch units it produces during the fiscal year ending March 2018, The Wall Street Journal reported. Nintendo, which had originally planned to produce 8 million Switch units this year, will apparently increase manufacturing to 16 million units with expectations of selling over 10 million units during the same period.

Also on the horizon: Xbox Scorpio, Microsoft’s (MSFT) next big console, which is expected to be 4K-friendly. GameStop Chief Operating Officer Tony Bartel expressed enthusiasm for Scorpio on Thursday’s investor call, calling it a “gamer friendly powerful console” that would help drive the retailer’s revenues when it arrives later this year.

If Bartel and Phan are correct, GameStop’s weak sales may turn around by year’s end.

JP Mangalindan is a senior correspondent for Yahoo Finance covering the intersection of tech and business. Follow him on Twitter or Facebook.  

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