GameStop Beats on EPS, Rev Misses

GameStop Corporation ( GME - Analyst Report ) , the video game and entertainment software retailer, recently posted second-quarter 2012 earnings of 16 cents a share, beating the Zacks Consensus Estimate by a couple of cents, but fell significantly from 22 cents earned in the prior-year quarter.

The company reported a fall in its top line and comparable-store sales, struggling due to the lack of significant game title launches.

The Grapevine, Texas-based GameStop posted total revenue of $1,550.2 million, down 11.1% from the year-ago quarter, and also fell short of the Zacks Consensus Revenue Estimate of $1,600 million.

By sales mix, new video game hardware sales plunged 33.5% to $183.3 million, whereas new video game software sales dropped 21% to $473.8 million. Moreover, used video game products sales declined 11.2% to $562.3 million. However, sales in other category jumped 40.6% to $330.8 million.

Within other category, Digital revenue increased 27% year over year to $134 million, whereas Mobile sales came in at $29 million. GameStop expects mobile sales to range from $150 to $200 million during fiscal 2012.

The company announced its plans of extending its mobile electronics business by providing trading services for a varied range of Android tablets. Management is banking on the increasing demand for Android tablets to drive customer traffic and thereby boost the company’s top line going forward.

During the quarter, gross profit fell 4.4% to $519.3 million. However, gross margin expanded 230 basis points to 33.5%, reflecting an equivalent contraction in cost of sales as a percentage of total revenue coupled with a rise in new businesses. Operating income plunged 35.6% to $34.5 million, whereas operating margin contracted 80 basis points to 2.3%.

GameStop ended the quarter with cash and cash equivalents of $138.7 million and net receivables of $40.2 million. During the quarter, the company bought back 7.6 million shares at $17.96 each, at an aggregate of $136.4 million. The company still has $301 million at its disposal under its share repurchase authorization.

It also announced a quarterly dividend of 25 cents a share, up 67% to be paid on September 12 to shareholders of record as of August 28.

During fiscal 2012, GameStop anticipates comparable-store sales to decrease between 10% to 2%. However, GameStop continues to expect fiscal 2012 earnings in the range of $3.10 to $3.30 per share.

For the third quarter of 2012, GameStop expects comparable store sales to decline in the range of 10% to 5%. Earnings are expected to be in the range of 28 cents to 36 cents.

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.