GameStop Posts Strong Q1 Earnings

Author's Avatar
May 31, 2015
Article's Main Image

GameStop Corp. (GME, Financial) recently revealed its first quarter results for fiscal 2015, with both earnings and revenues beating the consensus estimate. The video-game retailer posted first quarter profits of $73.8 million or 68 cents a share compared to $68.0 million or 59 cents a share in the prior-year quarter. The figures also beat the consensus estimate of 59 cents a share on the back of higher revenues and same-store sales. Following the results, while GameStop shares climbed over 7% and stood at $43.84 at closing bell, the positive trend continued into afterhours trading when the shares touched a high of $45.

Strong Software Sales Boosts Revenues

GameStop posted 3.2% year-over-year growth in revenues to $2.06 billion for the first quarter of fiscal 2015, beating the consensus estimate of $2.01 billion by a small margin, as the retailer captured a 45% market share for new software. The growth was primarily driven by 9.6% growth in sales of new software during the quarter, on the back of strong new titles such as Battlefield Hardline, Dying Light and Mortal Kombat X. At the same time, Hardware sales grew 40 basis points in the quarter, posting a 5.1% growth excluding foreign exchange on the back of strong demand for the PlayStation 4 handheld units.

While sales in the consumer electronics and mobile phones segment jumped 33.9% to $136.8 million, the company’s Tech brands segment saw 70% year-over-year growth in revenues to $102.2 million. Further, GameStop’s idea of offering add-on digital content for physical games continued to play well with gamers and publishers, helping the company to clock 17.9% growth in digital sales during the quarter. At the same time, the company said its collectibles and licensed merchandise category was taking off well and was the fastest growing segment of the first quarter. The company also reported strong 8.6% growth in same-store sales, with 9.1% and 6.9% growth logged in the US and international markets respectively. GameStop also saw double-digit rise in same-store sales in Canada and Australia.

During the quarter, GameStop, which competes with other retailing giants such as Amazon.com Inc. (AMZN, Financial), Wal-Mart Stores Inc. (WMT, Financial) and Best Buy Co. Inc. (BBY, Financial) in the consumer electronics marketplace bought back 1.19 million shares at an average price of $39.03 a share. The company also announced a quarterly cash dividend of 36 cents per common share.

Outlook for Fiscal 2015

Following the results, GameStop also provided guidance for the upcoming quarter. The company projected earnings of 21 to 25 cents a share for Q2 2015, while comparable-store sales growth is expected to range from flat to 3%. Revenues are expected to range from a negative 3% to flat on a year-over-year basis. For the full fiscal 2015, GameStop foresees earnings in the range of $3.63-$3.83 a share, higher than the previous guidance of $3.60 to $3.80 a share. At the same time, the company expects comparable-store sales to grow in the 1% to 6% range.

Consensus estimates peg GameStop’s Q2 earnings at 21 cents a share, while for the full fiscal; earnings are expected to come in at $3.85 a share.

Final Thoughts

GameStop reported better-than-expected first quarter results for fiscal 2015 on the back of strong growth at the new software segment. At the same time, the company’s other divisions such as Hardware, Digital and Tech brands also displayed robust performance during the quarter, contributing significantly to overall revenues. While the company ended the quarter with 549 Simply Max and Spring Mobile stores, GameStop plans to open as many as 200 new Tech brand stores in Q2 2015, which is expected to increase infrastructure expenses significantly for the quarter and in turn impact earnings. However, experts are looking at a healthy 13% average annual earnings growth rate for GameStop over the next five years. Consequently, the GameStop stock currently carries a ‘buy’ guidance.