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GameStop (GME) Plunges on Sluggish Holiday Sales Results
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The challenging retail landscape, aggressive promotional strategies and waning store traffic weighed on GameStop Corp. (GME - Free Report) holiday sales results. The lackluster performance compelled management to trim its comparable-store sales (comps) projection. All these factors were enough to punish the stock, as it plunged about 8% during the trading session on Jan 13.
Let’s Take a Close Look
The company generated total global sales of $2.50 billion, down 16.4% year over year. Comps decreased 18.7%, reflecting a fall of 26.6% and 13% in November and December, respectively. Management pointed that comps improved sequentially and expects the trend to improve further in January. Comps in November’s were hurt by dismal sales of “Call of Duty: Infinite Warfare” and “Titanfall 2”, and “aggressive console promotions” on Thanksgiving Day and Black Friday.
New hardware sales plunged 30.3% due to significant decline in PlayStation 4 and Xbox One hardware sales. Even the sturdy performance of new hardware, such as the Nintendo NES Classic failed to act as the savior. New video game software sales plummeted 22.8% on account of tough year-over-year comparisons, reduced average selling prices and decline in store traffic.
Pre-owned sales fell 7.9%, while PowerUp Rewards loyalty program jumped 10% in the past one year exceeding 51 million members globally.
What Still Raises Hope
Although GameStop is disappointed with its overall performance, it remains optimistic about non-physical gaming businesses and anticipates this category to reach approximately 40% of earnings in fiscal 2016. Collectibles sales surged 27.1% to $176.9 million buoyed by assortment of Pokémon products. Technology Brands revenue increased 44% to $192.4 million attributable to store growth, and robust sales of the iPhone 6s, iPhone 7 and Samsung Galaxy S7. However, digital receipts, on a non-GAAP basis, declined 9.2% to $295.5 million.
Outlook
Following a sluggish holiday season, management now expects comps to decline in the range of 16–18% in the final quarter compared with 7–12% drop projected earlier. For fiscal 2016, GameStop envisions comps to decline between 10% and 12% compared with the prior estimate of 6.5–9.5% decline.
However, management reiterated its earnings projection. GameStop continues to expect earnings in the band of $2.23 to $2.38 for the fourth quarter and between $3.65 and $3.80 per share for the fiscal year.
Bottom Line
GameStop’s dull holiday season and subsequent lowering of outlook has hurt investors’ sentiment and we will not be surprised if shares of this Zacks Rank #3 (Hold) company slide further in the coming days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, the stock has declined 24.7% compared with the Zacks categorized Retail-Consumer Electronic industry, which gained 23.5% in the same time frame. We noted that the industry occupies a space in the top 10% of the Zacks Classified industries (27 out of the 265).
Apart from GameStop, other retailers such as Macy’s, Inc.’s (M - Free Report) , J. C. Penney Company, Inc. and Kohl’s Corporation (KSS - Free Report) also came out with their holiday sales results.
Macy’s comparable sales on an owned plus licensed basis decreased 2.1% during November and December period combined, while on an owned basis, comparable sales fell 2.7%. We noted that J. C. Penney and Kohl’s witnessed comps decline of 0.8% and 2.1%, respectively, during the combined November and December period.
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GameStop (GME) Plunges on Sluggish Holiday Sales Results
The challenging retail landscape, aggressive promotional strategies and waning store traffic weighed on GameStop Corp. (GME - Free Report) holiday sales results. The lackluster performance compelled management to trim its comparable-store sales (comps) projection. All these factors were enough to punish the stock, as it plunged about 8% during the trading session on Jan 13.
Let’s Take a Close Look
The company generated total global sales of $2.50 billion, down 16.4% year over year. Comps decreased 18.7%, reflecting a fall of 26.6% and 13% in November and December, respectively. Management pointed that comps improved sequentially and expects the trend to improve further in January. Comps in November’s were hurt by dismal sales of “Call of Duty: Infinite Warfare” and “Titanfall 2”, and “aggressive console promotions” on Thanksgiving Day and Black Friday.
New hardware sales plunged 30.3% due to significant decline in PlayStation 4 and Xbox One hardware sales. Even the sturdy performance of new hardware, such as the Nintendo NES Classic failed to act as the savior. New video game software sales plummeted 22.8% on account of tough year-over-year comparisons, reduced average selling prices and decline in store traffic.
Pre-owned sales fell 7.9%, while PowerUp Rewards loyalty program jumped 10% in the past one year exceeding 51 million members globally.
What Still Raises Hope
Although GameStop is disappointed with its overall performance, it remains optimistic about non-physical gaming businesses and anticipates this category to reach approximately 40% of earnings in fiscal 2016. Collectibles sales surged 27.1% to $176.9 million buoyed by assortment of Pokémon products. Technology Brands revenue increased 44% to $192.4 million attributable to store growth, and robust sales of the iPhone 6s, iPhone 7 and Samsung Galaxy S7. However, digital receipts, on a non-GAAP basis, declined 9.2% to $295.5 million.
Outlook
Following a sluggish holiday season, management now expects comps to decline in the range of 16–18% in the final quarter compared with 7–12% drop projected earlier. For fiscal 2016, GameStop envisions comps to decline between 10% and 12% compared with the prior estimate of 6.5–9.5% decline.
However, management reiterated its earnings projection. GameStop continues to expect earnings in the band of $2.23 to $2.38 for the fourth quarter and between $3.65 and $3.80 per share for the fiscal year.
Bottom Line
GameStop’s dull holiday season and subsequent lowering of outlook has hurt investors’ sentiment and we will not be surprised if shares of this Zacks Rank #3 (Hold) company slide further in the coming days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past six months, the stock has declined 24.7% compared with the Zacks categorized Retail-Consumer Electronic industry, which gained 23.5% in the same time frame. We noted that the industry occupies a space in the top 10% of the Zacks Classified industries (27 out of the 265).
Apart from GameStop, other retailers such as Macy’s, Inc.’s (M - Free Report) , J. C. Penney Company, Inc. and Kohl’s Corporation (KSS - Free Report) also came out with their holiday sales results.
Macy’s comparable sales on an owned plus licensed basis decreased 2.1% during November and December period combined, while on an owned basis, comparable sales fell 2.7%. We noted that J. C. Penney and Kohl’s witnessed comps decline of 0.8% and 2.1%, respectively, during the combined November and December period.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>