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GameStop (GME) Tops Q4 Earnings, Stock Tumbles on Drab View
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GameStop Corp. (GME - Free Report) continued with positive earnings surprise streak for the fifth straight quarter, when it reported fourth-quarter fiscal 2016 results. However, this was the third consecutive quarter of sales miss for the multichannel video game and consumer electronics retailer. Notably, the sales miss can be attributed to sluggish demand for gaming consoles. Further, we noted that both the top line and bottom line continued to decline year over year.
The company recorded adjusted earnings of $2.38 per share that beat the Zacks Consensus Estimate of $2.29 but declined by a couple of cents from the year-ago quarter. Net sales declined 13.6% year over year to $3,045.4 million and fell short of the Zacks Consensus Estimate of $3,116 million. The year-over-year decline witnessed was primarily due to softness in video game hardware and software sales.
Gamestop Corporation Price, Consensus and EPS Surprise
The dismal quarterly performance, which included soft holiday sales results, compelled management to provide a bleak outlook for fiscal 2017. Further, the company hinted that it plans to lower global store count. The challenging retail landscape, aggressive promotional strategies and waning store traffic have been weighing on performance.
As a result, shares of this Grapevine, TX-based company plunged 11.3% during after-market trading hours yesterday. In the past six months, the stock has declined 10.7%, compared with the Zacks categorized Retail-Consumer Electronic industry’s increase of 13.9%.
Let’s Delve Deep
Consolidated comparable store sales (comps) decreased 16.3%, reflecting a decline of 20.8% at domestic locations and 4.6% at international locations. By sales mix, new video game hardware sales dropped 29.1% to $583 million, while new video game software sales fell 19.3% to $927.4 million. Moreover, pre-owned and value video game products sales came in at $680.6 million, down 6.7% year over year.
Video game accessories sales declined 17.4% to $238.5 million. Non-GAAP digital receipts decreased 7.7% to $373.4 million, while GAAP digital sales fell 5.8% to $57.2 million. Decline in new video game sales adversely impacted digital sales.
Technology Brands sales jumped 43.9% to $256 million driven by year-over-year growth in stores. Collectibles sales surged 27.8% to $212.4 million buoyed by robust sales of Pokémon-related toys and apparel. The company added 17 Collectibles stores during the quarter, taking the total count to 86 stores, comprising 24 ThinkGeek stores in the U.S.
Management expects sturdy performance of Technology Brands and Collectibles to continue in fiscal 2017, and added that new hardware innovation in the video game category also looks promising. Technology Brands adjusted operating earnings came in at $34 million, up significantly from $18 million in the prior-year quarter.
Management expects Technology Brands operating earnings to rise over 30% to $120 million during fiscal 2017 and to be $200 million in fiscal 2019. The company expects Technology Brands sales to increase 10–16% in fiscal 2017.
GameStop expects to enhance collectibles business by 30–40% to approximately $650–$750 million during fiscal 2017 and anticipates becoming a $1 billion business by the end of fiscal 2019. The company remains optimistic about non-physical gaming businesses and expects this category to reach approximately 50% of operating earnings by the end of fiscal 2019.
During the reported quarter, gross profit slipped 3.4% to $1,007.9 million, however, gross margin expanded 350 basis points to 33.1%. Adjusted operating income declined 11.7% to $343.1 million, while adjusted operating margin increased 30 basis points to 11.3%.
Store Update
In fiscal 2016, GameStop shuttered a net of 119 video game stores globally, ending the year with 3920 video game stores. The company acquired 511 technology brand stores, opened 72 and closed 97 stores, resulting in a net growth of 486 stores and thereby bringing the store count to 1522. The company opened net 51 collectible stores during the fiscal year and now has 86 stores.
In fiscal 2017, the company plans to open about 35 new collectibles stores worldwide, and approximately 65 new Technology Brand stores. Further, the company expects to lower global store footprint by 2–3%.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $669.4 million, net receivables of $220.9 million, long-term debt of $815 million and shareholders’ equity of $2,254.1 million. The company incurred capital expenditures of about $142.7 million during fiscal 2016.
Management projects capital expenditures in the range of $110–$120 million and free cash flow to be approximately $300 million in fiscal 2017.
In the reported quarter, the company bought back 1.66 million shares for $39.1 million. During fiscal 2016, the company repurchased 3.01 million shares for $75.1 million. As of Mar 23, the company still has $170.2 million remaining under share repurchase authorization. The company’s board of directors increased the annual cash dividend by 2.7% to $1.52 per share.
Guidance
GameStop now expects fiscal 2017 total sales to be down 2% to up 2% and projects comps to be flat to down 5%. Management expects operating margin in the band of 6.5–7%. For the fiscal year, management envisions earnings in the range of $3.10–$3.40 per share. The current Zacks Consensus Estimate for fiscal 2017 is pegged at $3.72, which could witness a downward revision in the coming days.
Best Buy delivered an average positive earnings surprise of 27.7% in the trailing four quarters and has a long-term earnings growth rate of 10.5%.
Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.
Kate Spade delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
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GameStop (GME) Tops Q4 Earnings, Stock Tumbles on Drab View
GameStop Corp. (GME - Free Report) continued with positive earnings surprise streak for the fifth straight quarter, when it reported fourth-quarter fiscal 2016 results. However, this was the third consecutive quarter of sales miss for the multichannel video game and consumer electronics retailer. Notably, the sales miss can be attributed to sluggish demand for gaming consoles. Further, we noted that both the top line and bottom line continued to decline year over year.
The company recorded adjusted earnings of $2.38 per share that beat the Zacks Consensus Estimate of $2.29 but declined by a couple of cents from the year-ago quarter. Net sales declined 13.6% year over year to $3,045.4 million and fell short of the Zacks Consensus Estimate of $3,116 million. The year-over-year decline witnessed was primarily due to softness in video game hardware and software sales.
Gamestop Corporation Price, Consensus and EPS Surprise
Gamestop Corporation Price, Consensus and EPS Surprise | Gamestop Corporation Quote
The dismal quarterly performance, which included soft holiday sales results, compelled management to provide a bleak outlook for fiscal 2017. Further, the company hinted that it plans to lower global store count. The challenging retail landscape, aggressive promotional strategies and waning store traffic have been weighing on performance.
As a result, shares of this Grapevine, TX-based company plunged 11.3% during after-market trading hours yesterday. In the past six months, the stock has declined 10.7%, compared with the Zacks categorized Retail-Consumer Electronic industry’s increase of 13.9%.
Let’s Delve Deep
Consolidated comparable store sales (comps) decreased 16.3%, reflecting a decline of 20.8% at domestic locations and 4.6% at international locations. By sales mix, new video game hardware sales dropped 29.1% to $583 million, while new video game software sales fell 19.3% to $927.4 million. Moreover, pre-owned and value video game products sales came in at $680.6 million, down 6.7% year over year.
Video game accessories sales declined 17.4% to $238.5 million. Non-GAAP digital receipts decreased 7.7% to $373.4 million, while GAAP digital sales fell 5.8% to $57.2 million. Decline in new video game sales adversely impacted digital sales.
Technology Brands sales jumped 43.9% to $256 million driven by year-over-year growth in stores. Collectibles sales surged 27.8% to $212.4 million buoyed by robust sales of Pokémon-related toys and apparel. The company added 17 Collectibles stores during the quarter, taking the total count to 86 stores, comprising 24 ThinkGeek stores in the U.S.
Management expects sturdy performance of Technology Brands and Collectibles to continue in fiscal 2017, and added that new hardware innovation in the video game category also looks promising. Technology Brands adjusted operating earnings came in at $34 million, up significantly from $18 million in the prior-year quarter.
Management expects Technology Brands operating earnings to rise over 30% to $120 million during fiscal 2017 and to be $200 million in fiscal 2019. The company expects Technology Brands sales to increase 10–16% in fiscal 2017.
GameStop expects to enhance collectibles business by 30–40% to approximately $650–$750 million during fiscal 2017 and anticipates becoming a $1 billion business by the end of fiscal 2019. The company remains optimistic about non-physical gaming businesses and expects this category to reach approximately 50% of operating earnings by the end of fiscal 2019.
During the reported quarter, gross profit slipped 3.4% to $1,007.9 million, however, gross margin expanded 350 basis points to 33.1%. Adjusted operating income declined 11.7% to $343.1 million, while adjusted operating margin increased 30 basis points to 11.3%.
Store Update
In fiscal 2016, GameStop shuttered a net of 119 video game stores globally, ending the year with 3920 video game stores. The company acquired 511 technology brand stores, opened 72 and closed 97 stores, resulting in a net growth of 486 stores and thereby bringing the store count to 1522. The company opened net 51 collectible stores during the fiscal year and now has 86 stores.
In fiscal 2017, the company plans to open about 35 new collectibles stores worldwide, and approximately 65 new Technology Brand stores. Further, the company expects to lower global store footprint by 2–3%.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $669.4 million, net receivables of $220.9 million, long-term debt of $815 million and shareholders’ equity of $2,254.1 million. The company incurred capital expenditures of about $142.7 million during fiscal 2016.
Management projects capital expenditures in the range of $110–$120 million and free cash flow to be approximately $300 million in fiscal 2017.
In the reported quarter, the company bought back 1.66 million shares for $39.1 million. During fiscal 2016, the company repurchased 3.01 million shares for $75.1 million. As of Mar 23, the company still has $170.2 million remaining under share repurchase authorization. The company’s board of directors increased the annual cash dividend by 2.7% to $1.52 per share.
Guidance
GameStop now expects fiscal 2017 total sales to be down 2% to up 2% and projects comps to be flat to down 5%. Management expects operating margin in the band of 6.5–7%. For the fiscal year, management envisions earnings in the range of $3.10–$3.40 per share. The current Zacks Consensus Estimate for fiscal 2017 is pegged at $3.72, which could witness a downward revision in the coming days.
Zacks Rank
GameStop currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector are Best Buy Co., Inc. (BBY - Free Report) , The Children's Place, Inc. (PLCE - Free Report) and Kate Spade & Company , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy delivered an average positive earnings surprise of 27.7% in the trailing four quarters and has a long-term earnings growth rate of 10.5%.
Children's Place delivered an average positive earnings surprise of 39% in the trailing four quarters and has a long-term earnings growth rate of 10.3%.
Kate Spade delivered an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emergingphenomenon and 6 tickers for taking advantage of it. If you don't buy now, you maykick yourself in 2020. Click here for the 6 trades >>