GameStop Beats on EPS, Sales Down

GameStop Corporation ( GME - Analyst Report ) , the video game and entertainment software retailer, recently posted third-quarter 2012 adjusted earnings of 38 cents a share, beating the Zacks Consensus Estimate of 32 cents, but falling 2.6% from 39 cents earned in the prior-year quarter.

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

The Grapevine, Texas-based GameStop posted total revenue of $1,772.8 million, down 8.9% from the year-ago quarter, and also fell short of the Zacks Consensus Estimate of $1,791 million.

By sales mix, new video game hardware sales plunged 33.4% to $184.8 million, whereas new video game software sales dropped 12.4% to $769.8 million. Moreover, used video game products sales declined 8.9% to $496.3 million. However, sales in other category jumped 31.1% to $321.9 million.

Within other category, Digital revenue increased 31.8% year over year to $127 million, whereas Mobile sales came in at $43.2 million. GameStop expects mobile sales to range from $150 to $200 million during fiscal 2012.

The company is 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 boosting the company’s top line.

During the quarter, gross profit fell 2.7% to $557.4 million. However, gross margin expanded 200 basis points to 31.4%, reflecting a contraction in cost of sales as a percentage of total revenue coupled with a rise in new businesses. Adjusted operating income dropped 8.8% to $75.3 million, while adjusted operating margin remained flat at 4.2%.

GameStop ended the quarter with cash and cash equivalents of $366.4 million and net receivables of $49.6 million. During the quarter, the company bought back 3.7 million shares at $20.59 each, at an aggregate of $76.8 million.

The company announced a new share repurchase program worth $500 million, overriding the existing program which had $242 million left at its disposal. It also announced a quarterly dividend of 25 cents a share, to be paid on December 12 to shareholders of record as of November 28.

For fiscal 2012, GameStop anticipates comparable-store sales to decrease between 6% to 9%. However, GameStop continues to expect fiscal 2012 earnings in the range of $3.10 to $3.30 per share. For the fourth quarter of 2012, GameStop expects comparable store sales in the range of -7% to 1%. Earnings are expected to be in the range of $2.07 to $2.27 per share.

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.