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GameStop Corporation (GME - Analyst Report), the video game and entertainment software retailer, recently posted better-than-expected first-quarter fiscal 2013 results on the back of improved digital and mobile businesses, gross margin improvement and gain in market share.

The quarterly earnings of 46 cents a share not only surpassed the Zacks Consensus Estimate of 40 cents but also came ahead of its previously-provided guidance range of 38 cents to 43 cents a share.

But the company posted a year-over-year drop of 14.8% in earnings from 54 cents earned in the year-ago quarter.

Let’s Unveil the Picture

The Grapevine, Texas-based GameStop’s total net sales of $1,865.3 million fell 6.8% from the year-ago quarter but came ahead of the Zacks Consensus Estimate of $1,844 million. Comparable-store sales dropped 6.7% during the quarter. The fall in sales was due to the lack of significant game title launches. Customers are postponing their purchasing activities due to the launch of console in the later part of the year.

By sales mix, new video game hardware sales slid 30.6% to $241.8 million, whereas new video game software sales dropped 3.8% to $703.2 million. Moreover, pre-owned video game products sales declined 7.5% to $572.6 million. However, sales in other category jumped 14.6% to $347.7 million.

Year-to-date, the company has grabbed market share of 47.7% for new PS3 and Xbox 360 software. Moreover, the fall in new video game software sales for the company is far less when compared to the industry decline of 14.2%.  

Within other categories, digital receipts increased 47.3% year over year, whereas Mobile sales came in at $46.8 million, surging 290%.

GameStop continued to branch out and transformed as a mixed retailer of physical and digital gaming and electronics products. The company’s venture in digital, iDevice and gaming tablet businesses would be accretive to its results.

During the quarter, gross profit tumbled 3.6% to $578.3 million due to a fall in the top-line. However, gross margin expanded 100 basis points to 31%, reflecting a contraction in cost of sales as a percentage of total net sales. Operating income declined 24.2% to $87.2 million, while operating margin shriveled 100 basis points to 4.7%.

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $245.7 million, net receivables of $57.2 million and shareholders’ equity of $2,296.3 million.

During the quarter, GameStop has bought back 1 million shares at a price of $25.07 per share, totaling $25.5 million. The company still has $400 million remaining at its disposal under its existing share repurchase program.

GameStop declared a quarterly dividend 27.5 cents to be paid on June 19, 2013, to stockholders of record as of June 4, 2013.

Strolling Through Guidance

Management now forecasts second-quarter fiscal 2013 comparable-store sales to decrease between 12.5% and 16%. Earnings are predicted to be in the range of 1 cent to 7 cents a share.

For fiscal 2013, GameStop now expects comparable-stores sales to be in the range of -5% to +1.5%. Earnings are projected between $2.90 and $3.15 per share. Earlier, management had anticipated comparable-stores sales to be in the range of -6% to +1.5% and earnings in the band of $2.75 to $3.15 per share.

The current Zacks Consensus Estimate for the second quarter and fiscal 2013 stands at 8 cents and $3.08 per share, respectively.

Currently, GameStop carries a Zacks Rank #3 (Hold). Other stocks worth considering in the retail sector, include Conns Inc. (CONN - Snapshot Report), which holds a Zacks Rank #1 (Strong Buy) and Cabela's Inc. (CAB - Analyst Report), which sports a Zacks Rank #2 (Buy).

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