Key Takeaways From GameStop’s Q1 Earnings

-16.65%
Downside
13.91
Market
11.59
Trefis
GME: GameStop logo
GME
GameStop

GameStop (NYSE:GME) reported healthy first quarter results that were driven by strong Nintendo Switch sales and strong performance in the international markets. The company posted first quarter adjusted EPS of 63 cents, 12 cents higher than market expectations, as well as net revenues of $2.05 billion, which were up 4% year-over-year (y-o-y). Comparable store sales increased 2.3% for the first quarter, primarily due to strong performance in the international markets.

In the first quarter, GameStop’s hardware sales rose more than 24%, primarily due to better than expected Nintendo Switch sales. Per the company, the Nintendo Switch has been able to outsell Nintendo Wii by 10% within two months of each’s respective launch. Software sales continue to decline y-o-y (down 8%), primarily due to lower physical sales of games. The video game market remained soft due to declining demand for previous generation consoles and a relative weakness of game titles launched in the holiday season. Another noteworthy trend is the decline in sales of pre-owned games, revenues from which dropped 6% y-o-y. These appear to be the primary reasons behind the company’s performance during the quarter.

Screen Shot 2017-05-26 at 14.15.01

Relevant Articles
  1. Will GameStop Stock Continue To Rise?
  2. What’s Next For GameStop Stock After Rising 26% Last Week?
  3. Can GameStop Stock Advance Continue After A 92% Surge In A Week?
  4. Vaxart, Macy’s, Gogo: Will These Stocks See A GameStop Like Short Squeeze?
  5. Time To Sell GameStop Stock After A 170% Rally?
  6. How Is GameStop Likely To Have Fared In Q1?

Screen Shot 2017-05-26 at 14.19.49

However, GameStop’s non-gaming business continues to perform well, with technology brands and collectibles registering 21% and 39% growth in revenues, respectively. Higher selling, general and administrative (SG&A) costs resulted in a decline in the company’s operating profit, which dipped more than 11% over the prior year period to $101 million. The rise in SG&A was primarily due to increased sales in the Technology Brands division.

GameStop’s Collectibles segment continues to perform well for the company, in line with its expectations. The company expects Collectibles to continue to perform well and is making a host of changes in order to facilitate the segment’s growth. The company plans to spend a significant portion of its capex (projected to be in the range of $110 million to $120 million) for restructuring 50 of its larger stores in the U.S., allotting half of the total retail space to collectibles.  Additionally, the company plans to enter into licensing agreements with major brands in order to expand its growing segment.

Going forward, GameStop expects to stem the decline in revenues and expects to post a marginal increase in revenues in 2017. However, the company expects comps to remain difficult. For the full year, the company expects to generate EPS in the range of $3.10 to $3.40, primarily due to growth in Tech Brands and Collectibles along with strong sales of the Nintendo Switch.


See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology