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Collectibles Business to Aid GameStop (GME) Q3 Earnings

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GameStop Corporation (GME - Free Report) is expected to report third-quarter fiscal 2018 results on Nov 20. The company outperformed the Zacks Consensus Estimate in three of the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

Which Way are Top & Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for the quarter under review stands at 55 cents, reflecting year-over-year growth of 1.9%. We note that the Zacks Consensus Estimate has remained stable in the past 30 days.

The Zacks Consensus Estimate for revenues of $2.05 billion indicates growth of roughly 3.1% from the year-ago quarter. We note that total revenues of this Texas-based company decreased 2.4% in the last reported quarter.

Well, the obvious question that comes to mind is whether GameStop will be able to sustain its positive earnings surprise streak in the third quarter of fiscal 2018. Though the past trend indicates an earnings beat, it will not be wise to jump to conclusion without analyzing the factors at play.

GameStop Corp. Price and EPS Surprise

 

Factors at Play

GameStop has been witnessing a rise in sales of collectibles for quite some time now, driven by continued expansion of licensed merchandise 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. Sales also rose 22.8% and 26.5% in the fourth and third quarters 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 is on track with its expansion plans and gradually evolving as a mixed retailer of physical and digital gaming as well as electronic 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 along with the PowerUp Rewards program has made it a popular destination for shoppers. The company’s partnership with AT&T, pre-owned trade capabilities and solid omni-channel presence are encouraging as well.

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

What Does the Zacks Model Say?

Our proven model shows that GameStop is likely to beat estimates this quarter. A stock needs to have both — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GameStop has a Zacks Rank #3 and an Earnings ESP of +3.26%, which makes us confident of a beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks With Favorable Combination

Here are companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Macy’s (M - Free Report) has an Earnings ESP of +20.00% and a Zacks Rank #2.

Target Corporation (TGT - Free Report) has an Earnings ESP of +1.41% and a Zacks Rank of #2.

Ross Stores (ROST - Free Report) has an Earnings ESP of +2.70% and a Zacks Rank of #2.

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