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GameStop (NYSE: GME) didn't have a great third quarter. Total sales increased by slightly higher than 5%. On a GAAP basis, earnings dropped three pennies to $0.28 per share. If you exclude items such as debt extinguishment and foreign currency effects, then adjusted earnings per share on a diluted basis increased 19% to $0.38.
The bottom line may have increased by double digits by GameStop's calculation, but there are a couple reasons not to be too impressed by the performance. First, management missed the analyst's call by three pennies (this particular source is using $0.34 as an adjusted number, and comparing it to the expectation of $0.37). Second, and of higher importance to me, same-store sales decreased 1.8% during the quarter.
Now, it is true that the video-game retailer was cycling off a dramatic 46.3% increase in comps in the year-ago period, an expansion that was driven by Microsoft's (NASDAQ: MSFT) incredible Halo 3 phenomenon. I realize it was a difficult comparison. But there's no way that an investor can't be disappointed by that figure. The difference between positive 46.3% and negative 1.8% is rather sizable; I think management should have tried a little harder to deliver a number on the positive side of things at the very least.
Comfort can be taken, though, in the fact that comps appear to be on the rise, according to the press release. In October, comps increased 11%, and in the first half of November, they rose over 20%. Video games will hopefully be a hot Christmas item. Drivers for these stats include Activision Blizzard's (NASDAQ: ATVI) new Call of Duty title and Microsoft's Gears of War 2.
GameStop will be moving a lot of gaming stuff from Sony (NYSE: SNE), Nintendo (OTC: NTDOY), Electronic Arts (NASDAQ: ERTS), and others in the next several weeks. But I don't think now is the time to buy the stock. The shares are down well over 7% as I write this. The stock has been weak this year. Wall Street just doesn't find GameStop attractive. I'd wait until some technical improvement in the chart makes itself known.
Disclosure: I own Activision Blizzard; positions can change at any time.
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Reader Comments (Page 1 of 1)
11-21-2008 @ 2:05PM
Jon said...
Steven,
You write..
"Now, it is true that the video-game retailer was cycling off a dramatic 46.3% increase in comps in the year-ago period, an expansion that was driven by Microsoft's (NASDAQ: MSFT) incredible Halo 3 phenomenon. I realize it was a difficult comparison. But there's no way that an investor can't be disappointed by that figure. The difference between positive 46.3% and negative 1.8% is rather sizable; I think management should have tried a little harder to deliver a number on the positive side of things at the very least."
What do you think the company could have done? I'd much rather them try and keep their price points higher, than have a huge sale because of weak economy and hurt gross margins just to keep comps up. As you correctly mention, those are tremendous comps to come off of - especially since it was the first real period when the consoles had their blockbuster money maker games out. We are just in a different part of the cycle, and I think that while of course we could wish the comps were better, I am glad that management isn't playing the comps game like they do in retail, which would further reduce EPS.