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GameStop's Q3 Earnings In Line

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GameStop Corp. (GME - Free Report) , the video game and entertainment software retailer, recently posted strong third-quarter fiscal 2013 results on the back of robust sales of new titles such as Grand Theft Auto V, solid digital and mobile business performance and gain in market share. The quarterly earnings of 58 cents per share (3 cents above the high end of the company’s guidance) came in line with the Zacks Consensus Estimate but surged 52.6% year over year.

Let’s Unveil the Picture

The Grapevine, Texas-based GameStop’s total net sales of $2,106.7 million rose 18.8% from the year-ago quarter, and also surpassed the Zacks Consensus Estimate of $1,981 million. Comparable-store sales increased 20.5% in the quarter, much ahead of the guided range.

By sales mix, new video game hardware sales grew 10.1% to $213.0 million, whereas new video game software sales increased 52.3% to $1,101.9 million. Moreover, pre-owned video game products sales rose 23.1% to $486.6 million. Sales in other category increased 14.5% to $305.2 million.

The rise in new video game software and hardware sales for the company is broader than the industry’s performance, and gained a market share of 675 basis points.

Within other category, digital receipts increased 8.6% year over year to $137.9 million, whereas Mobile sales came in at $49.9 million, surging 14.4%.

GameStop continued to branch out and transformed as a mixed retailer of physical and digital gaming and electronics products. The company’s venture in digital, iDevice and gaming tablet businesses would be accretive to its results.

During the quarter, gross profit increased 7.4% to $598.4 million due to robust top-line growth. However, gross margin contracted 300 basis points to 28.4%, reflecting an expansion in cost of sales as a percentage of total net sales.

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $649.1 million, net receivables of $88.6 million and shareholders’ equity of $2,147.3 million.

During the quarter, GameStop has bought back 1.84 million shares at a price of $51.37 per share, totaling $94.4 million. Further, the company declared that its board of directors has approved a new $500 million share buyback plan, replacing the current share repurchase authorization of $217 million shares.

Also, GameStop declared a quarterly dividend 27.5 cents to be paid on Dec 19, 2013, to stockholders of record as of Dec 4, 2013.

Strolling Through Guidance

Management now forecasts fourth-quarter fiscal 2013 comparable-store sales to increase by 2%–9%. Earnings are predicted to be in the band of $1.97 to $2.14 per share.

For fiscal 2013, GameStop now expects comparable-stores sales to be in the range of 1.5% to 4.5%. Buoyed by robust third-quarter results, management has raised its earnings guidance for the full year. Earnings are now expected to be in the range of $3.08–$3.25 per share, as against $3.00–$3.20 projected earlier.

The current Zacks Consensus Estimate for the fourth quarter and fiscal 2013 stands at $2.14 and $3.25 per share, respectively.

Currently, GameStop carries a Zacks Rank #2 (Buy).

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