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GameStop Gains From Collectibles Business Despite Soft Comps

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GameStop Corp. (GME - Free Report) is gaining from robust collectibles business and expansion plans for a while. Moreover, shares of this video game retailer gathered momentum, post its buyout talks. These factors may be cited as reasons behind the company’s decent run on the bourses. Notably, shares of this Zacks Rank #3 (Hold) company have gained 10.4% in the past six months, outperforming the industry’s rise of 5.2%. Analysts also believe that the stock has upside potential as apparent from its VGM score of A.

GameStop has been witnessing a rise in sales of collectibles for quite some time now, driven by continued expansion of licensed merchandise offerings and unique product offerings. In second-quarter fiscal 2018, sales of collectibles rose 15.7% following an increase of 24.4% in the first quarter, as well as a respective rise of 22.8% and 26.5% in the fourth and third quarter of fiscal 2017. Further, strong growth in apparel aided the performance. Management also expects this segment to become a $1-billion business by the end of fiscal 2019.

The company gained momentum, following exploratory talks related to a potential transaction. The video game retailer might be holding discussions with private equity firms like Sycamore Partners. However, management earlier stated that there is no guarantee of any deal after these discussions.

GameStop remains on track with its expansion plans and is gradually evolving as a mixed retailer of physical and digital gaming as well as electronics products. The company’s venture into digital, iDevice and gaming tablet businesses would be accretive. Also, GameStop’s buy-sell-trade model of selling new games and buying back used games, and the PowerUp Rewards program have made it a popular destination for shoppers. The company’s partnership with AT&T, pre-owned trade capabilities and solid omni-channel presence are also encouraging.

However, the company’s Technology Brands has been witnessing dismal sales since the past few quarters due to store closures. Also, net sales declined year over year in second-quarter fiscal 2018, while comparable sales declined 0.5%. Further, management continues to expect fiscal 2018 sales to decline 2-6% and comparable store sales to be flat to down 5%. Moreover, margins have been contracting for a while now and persistence of this trend might pose a concern.

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