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GameStop Corporation (GME - Analyst Report) is set to release its financial results for the second-quarter of fiscal 2012 on Thursday, August 16, 2012. The company is one of the leading retailers of software, hardware, and game accessories for video game systems and personal computers.

The current Zacks Consensus Estimate for the quarter stands at 15 cents per share, indicating an estimated year-over-year decrease of 31.8%. The estimate lies between a low of 11 cents to a high of 21 cents. Revenue, as per the Zacks Consensus Estimate, is pegged at $1,604 million.

First-Quarter Review

GameStop posted first-quarter 2012 earnings of 54 cents a share that came in line with the Zacks Consensus Estimate, but fell 3.6% from 56 cents earned in the prior-year quarter.

GameStop posted total revenue of $2,002.2 million, down 12.2% from the year-ago quarter. This also fell short of the Zacks Consensus Revenue Estimate of $2,061 million. Moreover, the retailer stated that comparable-store sales tumbled 12.5% during the first-quarter compared to the prior-year quarter.

(Read full report on earnings: GameStop Posts In-Line Results)

Guidance

GameStop anticipates comparable-store sales to decrease between 5% and 11% during the second quarter and to remain flat or decline 5% during fiscal 2012.

Management projects earnings between 10 cents and 18 cents for the second quarter. GameStop continues to expect fiscal 2012 earnings in the range of $3.10 - $3.30 per share.

Agreement of Estimate Revision

For the to-be-reported quarter, out of 17 estimates, three were revised downwards over the last 30 days, whereas one estimate was revised upward in the last 7 as well as 30 days. Similar changes were made for fiscal 2012 with 18 estimates covering the stock.

The slump in the video gaming industry persists due to increased online gaming activities, and shifting preferences toward tablets and mobile phones from traditional game consoles. GameStop, being a part of the video game industry, is no exception. Moreover, the company witnessed a fall in its top-line and comparable-store sales due to the lack of significant game title launches and lower-than-expected hardware and software sales during the first quarter.

Consequently, majority of the analysts remained concerned about the profitability of GameStop, and thus lowered their estimates.

Magnitude of Estimate Revision

For the second-quarter 2012, the estimates went up by a penny to 15 cents over the last 7 days, whereas the estimates remain unchanged in the last 30 days.

Positive Earnings Surprise History

With respect to earnings surprise, GameStop has topped the Zacks Consensus Estimate over the last four quarters, with an average of 2.67%. Looking at the past performances, we believe GameStop to continue the pace in the coming quarters.

Conclusion

Despite secular headwinds, we believe that GameStop is well positioned to drive sales in the long run. The company holds a significant position in the used video game products market, which has been exhibiting resilience in the current economic downturn.

GameStop continued to branch out and transformed as a mixed retailer of physical and digital gaming as well as electronics products. The company’s venture in digital, iDevice and gaming tablet businesses would be accretive to its profit. The company’s buy-sell-trade model of selling new games and buying back used games and PowerUp Rewards program makes it a popular destination for shopping.

However, consumers’ increasing accessibility to video games and PC entertainment software, over the Internet, could hit the sales of packaged goods and used games.

Currently, we have a long-term ‘Neutral’ recommendation on GameStop. Moreover, GameStop, which faces stiff competition from Amazon.com Inc. (AMZN - Analyst Report), holds a Zacks #3 Rank that translates into a short-term Hold rating.

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