Q2 Preview: NPD Data Points to Weak Quarter for GameStop (GME)

August 17, 2011 3:59 PM EDT
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Price: $23.58 +1.16%

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    12 Buy, 10 Hold, 3 Sell

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GameStop Corp. (NYSE: GME) shares are down more than 4 percent Wednesday afternoon heading into its second-quarter earnings results.

Before the market opens Thursday, GameStop is expected to report earnings of 22 cents on revenue of $1.83 billion. Over the last three quarterly reports, GameStop managed to beat views by an average of just 1.2 percent.

Shares fell 8.2 percent through the quarter and down 12.5 percent since. The stock is down nearly 10 percent on the year. GameStop has traded in a range of $17.70 to $28.66 over the last 52 weeks.

At about 6.6x forward earnings, GameStop appears to be cheaper than other gaming retailers. GameStop is also the only pure play in the gaming sales environment, as other retailers, like Best Buy (NYSE: BBY), Amazon.com (Nasdaq: AMZN), and Wal-Mart (NYSE: WMT), diversify offerings beyond just video and PC games and equipment.

Data from Bloomberg has 11 analysts with a Buy rating, 6 at Hold, and 1 suggesting to Sell. The analyst price target average is $30, with a range of $23 to $34.

Analyst Commentary
Goldman Sachs notes July video game sales data from NPD point to a weaker quarter for GameStop. Software sales declined 17 percent, from 12 percent in June. Goldman notes softness was from Wii, as well as Nintendo's DS and Sony's PSP handheld devices. Hardware sales in the month were off 29 percent.

Goldman sees second-quarter comps down 2 percent reflecting "sector trends and a more challenged macro backdrop." Goldman continues, "Our (8%) new software comp forecast for 2Q compares to (16%) for the industry, implying 800 bp of outperformance vs. 400 bp in the past two quarters."

Deutsche Bank also points out that NPD data suggests second-quarter "hardware and software sales were down 18%, well below GameStop’s comps guidance of flat to -2%." Deutsche sees earnings of 23 cents per share on revenue of $1.69 billion and comps of (7) percent. Commenting, "Our estimates reflect market share gains from over-indexing on HD consoles, contribution from digital revenue growth, customer gains from its PowerUp Rewards program, and solid performance in used game sales."

Solid earnings are expected as GameStop has more control over marketing spending and investment in its digital initiatives.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release.

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