GameStop’s Earnings Will Be Weighed Down By The Challenging Environment

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GameStop is set to report its Q3 fiscal 2016 earnings on November 22 and we expect the company’s revenues to be down compared to the prior year period owing to weak sales for hardware and software. In fact, in its preliminary results, the company said that its comparable sales are expected to be down 6% to 7%, with EPS in the range of $0.45-$0.49, down from the prior year figure of $0.54. Hardware sales are likely to be bogged down by the consistently declining demand for previous generation portables and consoles, as well as price cuts for current generation consoles. For the software segment, the availability of a fewer number of core game titles this year as compared to the last could have had a negative impact. Also, the recently concluded quarter may have also experienced a negative impact of the enormous popularity of Niantic’s free-to-play smartphone game “Pokemon Go.”

GameStop had been diversifying its business portfolio by acquiring technology brand stores to cater to a larger audience with different needs. The company operates a number of tech brand stores selling non-game electronics such as mobile phones and Apple devices, as well as pop-culture collectibles. While the segment has been performing well, it likely faced some pressure this time around. Retail major, Target, reported that its electronics segment continues to underperform, following a weak Q2 due to industry-wide weak demand. We believe that even GameStop wouldn’t have been immune to this pressure, which could have translated into a mild quarter for its technology brands business.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for GameStop

 

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