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GameStop Beats, Guides Below Estimates

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GameStop Corporation (GME - Free Report) , the video game and entertainment software retailer, recently posted better-than-expected fourth-quarter fiscal 2012 results, wherein earnings of $2.16 per share beat the Zacks Consensus Estimate of $2.09, and rose 24.9% from $1.73 earned in the prior-year quarter on the back of strength witness across digital and mobile businesses and gross margin improvement.   

Including one-time items, the company reported quarterly earnings of $2.15 per share compared with $1.27 in the year-ago quarter.

Let’s Unveil the Picture

The Grapevine, Texas-based GameStop’s total net sales of $3,561.5 million fell marginally by 0.5% from the year-ago quarter but came ahead of the Zacks Consensus Estimate of $3,493 million. Comparable-store sales dropped 4.6% during the quarter. The fall in sales was due to the lack of significant game title launches.

By sales mix, new video game hardware sales fell 1.5% to $616.7 million, whereas new video game software sales dropped 2.8% to $1,607.7 million. Moreover, pre-owned video game products sales declined 7.9% to $752.8 million. However, sales in other category jumped 21.6% to $584.3 million.

Within other category, digital receipts increased 60.3% year over year, whereas Mobile sales came in at $100 million.

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 grew 3.4% to $974.9 million, whereas gross margin expanded 100 basis points to 27.4%, reflecting a contraction in cost of sales as a percentage of total net sales. Operating income surged 36.3% to $412.3 million, while operating margin increased 310 basis points to 11.6%.

Other Financial Aspects

GameStop, which competes with Inc. (AMZN - Free Report) , ended the quarter with cash and cash equivalents of $635.8 million, net receivables of $73.6 million and shareholders’ equity of $2,286.3 million.

During fiscal 2012, GameStop generated operating cash flow of $632.4 million and incurred capital expenditures of $151.2 million, resulting in free cash flow of $481.2 million. During the fiscal year, the company bought back shares worth of $409.4 million and paid dividends of $102 million. In the quarter under review, it repurchased 3.2 million shares, aggregating of $74.7 million.

So far in fiscal 2013, GameStop has bought back 1 million shares at a price of $25.06 per share, totaling $25.3 million. The company still has $400 million remaining at its disposal under its existing share repurchase program.

Recently, on Feb 19, 2013, GameStop raised its quarterly dividend by 10% to 27.5 cents (or $1.10 annually) from 25 cents a share (or $1.00 annually). The increased dividend was paid on Mar 19, 2013, to stockholders of record as of Mar 5, 2013.

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