By Zacks Equity Research
    ‎ 
GameStop Corp. (GME), a video game and entertainment software retailer, is slated to report its fourth-quarter 2011 financial results before the opening bell on March 22. 

The current Zacks Consensus Estimate for the quarter stands at $1.72 per share, representing an estimated year-over-year increase of about 10%. Revenue, as per the Zacks Consensus Estimate, is $3,709 million.

Third-quarter overview

GameStop's quarterly earnings of 39 cents a share, inched up 2.6% from 38 cents earned in the prior-year quarter. However, the earnings were in line with the Zacks Consensus Estimate.

The company posted total revenue of $1,946.8 million, up 2.5% from $1,899.2 million in the year-ago quarter. However, total revenue was below the Zacks Consensus Revenue Estimate of $1,963 million.

Guidance reiterated

GameStop, which faces stiff competition from Amazon.com (AMZN), had little to cheer about its total sales figure for the nine-week holiday period ended Dec. 31, 2011, as sales inched up $3,019.1 million from $3,018.1 million reported in 2010.  However, the company stood by its earlier guidance and expects earnings between $1.66 to $1.76 for the fourth quarter and in the range of $2.82 to $2.92 per share for fiscal 2011.

Earnings estimate revisions - overview

There was no movement in estimates for GameStop, indicating that the company's risk-reward ratio continues to remain well balanced.

Agreement of estimate revisions

We do not see any major estimate revisions at this point. Among the 16 analysts covering the stock, one revised the estimate upward in the last 30 days, while none moved in the opposite direction. For fiscal 2011, one analyst revised the estimate downward, while none raised the same.

Magnitude of estimate revisions

The Zacks Consensus Estimate for the quarter remained stable over the last 30 days. GameStop's total holiday season sales rose marginally. New video game software sales boosted total sales, but dismal sales across game consoles and hardware were the deterrents. Comparable-store sales fell 0.3%. Management now expects comps for both the fourth quarter and fiscal 2011 to decline between 1% and 2%.

Earnings surprise history

With respect to earnings surprises, GameStop has topped as well as met the Zacks Consensus Estimate over the last four quarters in the range of 0% to 4.8%. The average remained at 4.2%. This suggests that GameStop has beaten the Zacks Consensus Estimate by the same magnitude in the trailing four quarters.

Our take

We believe that GameStop is well positioned to take advantage of the growing market for video game products and PC entertainment software. The company's strategy is to grow through store expansions in favorable localities, by providing the largest title collection of video games, and by leveraging its first-to-market distribution network to offer the latest hardware and software releases.

Further, GameStop holds a significant position in the used video game products market. The company provides a greater selection of used video game products for both current and previous generation platforms. The market for used video game products has been resilient in the recent economic downturn.

Recently, the company announced its first-ever quarterly dividend of 15 cents a share, reflecting the company's debt-free balance sheet along with healthy cash flows.

Considering the company's fundamentals, we maintain a long-term "neutral" recommendation on the stock. Moreover, GameStop currently retains a Zacks No. 2 Rank, which translates into a short-term "buy" rating.

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