GameStop falls 6% on disappointing sales

Analysts remain cautious about the video-game retailer after a quarter that saw sales drop 3%.

By Benzinga Mar 22, 2012 5:04PM

By Brett Callwood, Benzinga Staff Writer

Shares of GameStop (GME) tumbled Thursday after the video-game retailer disappointed Wall Street with lower quarterly sales.

The company reported that fourth-quarter sales fell 3% to $3.58 billion, below the $3.71 billion analysts expected to see. Profit was in line with estimates and dropped to $174.7 million, or $1.27 per share, from $237.8 million, or $1.56 per share, a year earlier. That's a startling slide, no matter which way you look at it.

The company's estimates for the current quarter also disappointed analysts. GameStop said it was expecting 52 cents to 55 cents a share in profit as sales drop between 7.5% to 9.5%. Analysts were expecting a profit of 59 cents and a sales drop of only 1%.

GameStop's full-year outlook was a little stronger. The company is forecasting a profit of $3.10 to $3.30 a share, expecting to do better with used videogames and new hardware from Nintendo. The analyst average sits at $3.16.

Goldman Sachs analysts said Thursday that the key to GameStop shares in the near term will be the success of its mobile device trade-in initiative. If the company does well, the analysts said, investors can "take the 2012 guidance with more credibility" even after the revenue growth drop expected for the current quarter.

Oppenheimer found some positives in GameStop's numbers, saying that traction from used and digital initiatives helped to offset a nearly 20% decline in hardware sales. Analysts also noted that GameStop's full-year profit forecast excludes gains from share buybacks, which could add at least 10 cents a share to earnings.

"Although we look favorably upon management's initial guidance, we remain concerned with a still challenging industry backdrop due to a lack of new meaningful hardware introductions," the analysts wrote in a report.

CEO Paul Raines is keeping positive, stating in a company release that "the market will like our outlook." Growth in digital, used and mobile products will give the company healthy earnings and margin improvement, he added.

GameStop hasn't performed well so far in 2012. Gaming experts may point to the shortage of high-profile, quality games released so far this year, but that's an excuse. Every industry will have spells where there is less demand for new product.

The key to survival during those times is to be imaginative. No trader or shareholder wants to hear: "but the games aren't very good." That's not a valid excuse; the simple response is, "So? What did you do?"

Nintendo's (NTDOY) Wii U console is expected to be released in time for the holiday season, and GameStop should be able to ride that product wave. That's a no-brainer. Until then, the used-game market is keeping the company breathing.

Gamestop closed Thursday at $23.16, down 6.1% after opening near $25.24 a share.

More from Benzinga:
Tags: GME
Mar 23, 2012 12:29PM
Just wait until "Hunger Games" comes out for gamers. Will pop Gamestop just like it did the movie industry. haha
Mar 23, 2012 12:27PM
I think Gamestop is a long-term short. They know digitial is their future, but Xbox Live and PSN will dominate sales there.
Mar 23, 2012 12:10PM
GameStop's mobile bet sounds interesting.. does anyone think it will pan out? I love my Vita, but I've been playing for years, most of my friends are looking to game on smartphones. don't know how GameStop plans on playing that.
Mar 23, 2012 12:08PM
Falling to $3.58 billion is nothing to worry about.  We've been overloaded with new gadgets through this past holiday season to present.
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