GameStop (GME) Stock Pummeled after Third Quarter Results
Shares of GameStop Corporation (GME) were down -3.99 or -9.16 percent to $39.55 in premarket trading this morning after the company reported lower than expected earnings for the third quarter after the market close on Thursday. GameStop stock closed at $43.54, up +0.26 or +0.60 percent in Thursday's regular trading session.
GameStop reported earnings of $0.57 per share on $2.09 billion in revenue in the company's fiscal third quarter versus $0.58 on $2.11 billion in the same period one year ago. Analysts were expecting $0.61 in earnings per share on $2.20 billion in revenue.
The company reported a +147.4 percent increase in new hardware sales compared to a growth rate of +102.4 percent for the entire industry. In addition, GameStop reported a +47.3 percent share of the new software market, the company's second highest level on record. Pre-owned software sales showed their third consecutive quarter of growth, increasing +2.6 percent, while sales in the consumer electronics and mobile segments increased +125 percent.
Nevertheless, new game software dropped -34.4 percent in the quarter compared to one year ago, in large part due to last year's release of Battlefield 4 and Grand Theft Auto V. In addition, the October launch of "Destiny" and "The Evil Within" saw a decrease of -42 percent in unit sales. Comparable store sales fell -2.3 percent compared to last year's third quarter, significantly lower than the +21.9 percent increase the company showed in the second quarter.
J. Paul Raines, GameStop President and Chief Executive Officer explained in a conference call with analysts the reasons for the earnings shortfall, "First of all, the shift of Assassin's Creed by a week impacted our quarter by $0.05 per share. And the overlap of Grand Theft Auto presented a large comp impact. GameStop's two-year comp for the third quarter is 18% [ph], among the highest in retail.
Second, digital growth was 52%. So, the growth of digital downloads is providing a nice tailwind to GameStop as well as many publishers.
Third, our technology brands unit is going aggressively and we expect solid growth in 2015 from the AT&T (T) relationship and the new cycle of Apple (AAPL) products. We may also acquire new technology brands in the future. Fourth, launched the PowerUp credit card in the quarter and the approved credit on the portfolio is over $140 million and likely to be used heavily at holiday in unique ways as we market the PowerUp base in both video games and technology brands. Lastly, are buyback was aggressive in the quarter as we continue to believe our shares are undervalued. Our recent debt offering was oversubscribed indicating that we can be flexible with our capital strategy."
GameStop's guidance for its fiscal fourth quarter ending in January of 2014 showed a forecast of earnings per share of $3.40 to $3.55 compared to a previous estimate of $3.40 to $3.70, analysts were expecting $3.68. Comparable store sales for the full year are now expected to be in the 2 to 5 percent range compared to a previous forecast of 6 to 12 percent. Guidance for fourth quarter earnings is now for earnings per share of $2.08 to $2.24 with comparable sales growth ranging between -5 percent to +2 percent.
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