GameStop Earnings: Why Did The Stock Drop Despite Promising Technology Brands Performance?
GameStop‘s (NYSE:GME) shares fell more than 7% in after hours trading as its Q2 fiscal 2016 comparable store sales dropped more than expected, and its outlook for the current quarter and full year fell short of expectations. The video game market remained soft due to declining demand of previous generation consoles and lack of fresh game titles. And these appear to be the reasons behind the company’s soft outlook for the full year. However, the company can take heart from the fact that its non-gaming business continues to perform well, mainly driven by the acquisition of new stores including 507 AT&T stores bought from different dealers for approximately $400 million.
Technology brands revenues were up 55% to $175 million, accounting for just over 10% of GameStop’s revenues. However, the business was more profitable than the company’s remaining segments as technology brands’ operating earnings at $14 million contributed over 23% to GameStop’s overall earnings. Within technology brands, collectibles’ sales were up 120% driven by expansion of new stores, heavy sales of merchandise associated with currently popular game – Pokemon Go and the recently released Warner Bros. movie – Suicide Squad. On the electronics side, sales of mobile and consumer goods was up 43%, but most of the growth may have come from store expansion given the prevailing softness in the consumer electronics domain. The aforementioned figures clearly indicate why it makes sense for GameStop to continue investing in the Technology side of the business. We expect the company to open/acquire 1,900 technology stores over the next five-six years.
For the quarter, GameStop reported a 7.4% decline in its revenues to $1.63 billion, which was 5% below the consensus estimates. Comparable sales were down more than 10%, which was worse than analysts’ expectations of 5.9% and the company’s own guided range of 4%-7%. However, GameStop managed to report its EPS in line with the expectations, thanks to the contribution from technology brands. For the full year, the company has dragged its comparable store sales forecast down to a 1.5% – 4% decline from its previous forecast of flat to a 3% decline.
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Have more questions on GameStop (NYSE: GME)? See the links below:
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