GameStop Corp. (GME - Free Report) started fiscal 2018 on a mixed note, with earnings surpassing the Zacks Consensus Estimate and revenues lagging the same in the first quarter. Apart from this, the company witnessed year-over-year decline on both the fronts. Further, consolidated comparable store sales (comps) declined year over year after increasing in the last few quarters. Meanwhile, the Grapevine, TX-based company kept the fiscal 2018 view intact.
However, results were a let-down for investors, as this Zacks Rank #3 (Hold) stock lost about 3% during the after-market trading session. In fact, GameStop’s shares have plunged 17.4% over the past three months, wider than the industry’s 9.1% decline.
In the quarter under review, adjusted earnings per share tumbled 39.7% year over year to 38 cents. However, earnings surpassed the Zacks Consensus Estimate of 35 cents – which marked the company’s third straight quarter of earnings beat.
Net sales declined 5.5% (down 7.5% on a currency-neutral basis) year over year to $1,934 million, which fell short of the Zacks Consensus Estimate of $1,957 million. The video game retailer lagged estimates after four straight quarters of sales beat.
Let’s Delve Deeper
Consolidated comps decreased 5.3%, reflecting a decline of 11.6% at international locations and 2.6% at domestic locations.
By sales mix, new video game hardware sales declined 7.9% to $359.2 million while new video game software sales were down 10.3% to $466.7 million. Difficult year-over-year comparisons dented sales in both the categories. More specifically, sales in both the categories were hampered by the launch of the Nintendo Switch in the year-ago quarter. Likewise, software sales were impacted by the launch of strength of titles across platforms in the prior fiscal.
Also, pre-owned and value video game products sales came in at $495.7 million, down 5.8% year over year. Worldwide omnichannel sales declined 46% owing to limited allocation of the Nintendo Switch at launch.
However, Video game accessories sales jumped 13.1% to $199.1 million. Also, non-GAAP digital receipts increased 16.2% to $273.7 million, while GAAP digital sales declined 2.5% to $43 million.
Technology Brands sales were down 16.1% to $169 million due to overlap in AT&T’s dealer compensation structure and lower promotional activity.
Nevertheless, Collectibles sales surged 24.4% to $142.4 million buoyed by continued expansion of licensed merchandise offerings and unique product offerings.
Gross profit decreased 6.4% to $657.3 million owing to lower net sales. Further, gross margin contracted 30 basis points (bps) to 34%.
SG&A expenses inched up 0.5% to $566.1 million in the reported quarter. Adjusted operating income declined 35.7% to $69.7 million, while adjusted operating margin contracted 160 bps to 3.6%.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $247.2 million, net receivables of $156.4 million, net long-term debt of $818.6 million and shareholders’ equity of $2,183.5 million.
For fiscal 2018, management maintains capital expenditure projection in the range of $110-$120 million.
GameStop reaffirmed the fiscal 2018 guidance. The company continues to expect fiscal 2018 sales decline of 6% to 2% and comps are expected to remain flat or decline around 5%. For the year, management continues to project earnings per share in the range of $3-$3.35. The Zacks Consensus Estimate for fiscal 2018 earnings is pegged at $3.03, which is close to the lower end of the guided range.
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