What Impacted GameStop’s Q4 Results?

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GameStop Inc (NYSE:GME) recently posted its Q4 FY 2018 results, which were below our estimates, as the pre-owned video games sales plummeted. Below we outline some of the key takeaways from the company’s earnings, and our estimates for 2019.

How Did GameStop Perform Over Q4? 

  • GameStop’s Q4 revenue stood at $3 billion, down 13% year-over-year.
  • Pre-owned video games sales were down 21% while new video game hardware and software sales declined by 10% and 8%, respectively.
  • The company divested its Spring Mobile business last year, which also impacted the y-o-y growth.
  • Adjusted net income stood at $164 million for the quarter, compared to $205 million in Q4 FY’17
  • The company saw strong 19% growth in the video game accessories business, which has been trending well of late.
  • The overall gross margins narrowed during the quarter, due to lower pre-owned video games sales, which offers higher margins.

What Impacted The Sales In 2018?

  • New consoles, such as Nintendo Switch, launched in 2017, spurred video games hardware sales for GameStop.
  • The sales have cooled in subsequent years, thereby impacting the company’s new video game hardware revenues.
  • Lower hardware sales have impacted the new video game software sales.
  • Fewer title releases in 2018 when compared to 2017 have also impacted the sales.
  • Video game accessories sales growth was led by higher demand for audio-related and battle royale (gaming genre) related accessories.
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What’s The Outlook For GameStop For Fiscal 2019?

  • Expect revenues to decline 2% to $8.1 billion in fiscal 2019.
  • Continued growth in video game accessories, and collectibles should offset some of the declines expected in other segments.
  • Margins could see further pressure with lower mix of pre-owned video games sales.
  • Lower revenues and margins will result in adjusted earnings of $1.08 per share in fiscal 2019, as compared to $2.70 per share in fiscal 2018, in our view.
  • Our price estimate of $12 for GameStop is based on a 11x forward price to earnings multiple.

Our interactive dashboard analysis on How Did GameStop Fare In Q4 2018, And What Can We Expect In 2019? details our forecasts for the company’s expected performance in 2019. You can modify our forecasts to arrive at your own estimates.  In addition, see more Trefis data for  consumer discretionary companies here.

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