Q4 Preview: GameStop (GME) Results, Outlook Could Suffer from Weak Game Selection

March 21, 2012 3:40 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 (NYSE: GME) is "leveling-up" ahead of its fourth-quarter 2011 results, expected out before the market opens Thursday. Shares are up about 1.8 percent on the session.

The Street is currently looking for earnings of $1.72 per share and revenue of $3.72 billion for the quarter, which includes the important holiday shopping season. For the same period last year GameStop reported EPS of $1.56 and revs of $3.69 billion.

Following its third-quarter release, GameStop said it expected fourth-quarter comps down 1 percent to 2 percent.

Shares of GameStop moved 8.6 percent lower in the quarter to $23.21 at the end of January. Shares are up 5.4 percent since then, though its up just 2.1 percent in 2012.

Investors might want to focus on some key data. Electronic Arts (Nasdaq: EA) beat its third-quarter [most recent] expectations, but issued weak fourth-quarter expectations on lighter game sales. The same could be said for Activision (Nasdaq: ATVI).

In the quarter, GameStop looked to lure in investors by declaring its first-ever quarterly dividend. At 15 cents per share, the dividend yields 2.4 percent...fairly healthy for a stock which has stayed rather flat for most of the year so far.

Data from Bloomberg has 11 analysts with a Buy on GameStop, five at Hold, and two with a Sell-equivalent rating. The Street's price target average is 29 with a low of $20 and high of $34.50. Over the last 52-weeks, GameStop has traded within a range of $18.34 to $28.66.

Analyst Comments
  • Goldman Sachs sees in-line fourth-quarter results, with net sales of $3.6 billion, a 2.6 percent drop in comps, and earnings of $1.74 per share. Gross margin should come in just above 35 percent, based on "trade-in values and sales prices listed on GME’s website and observed in stores, with an assumption for the cost of refurbishing devices."

    Looking ahead, Goldman sees 2012 earnings growth guidance of 10 percent, with a low-single-digit decline in comps.

  • Wedbush is looking for revs of $3.64 billion, comps down 1 percent, and EPS of $1.76. Wedbush commented, "According to NPD, Q4 console software sales were down 7.4%, below our estimate of up 7.5%, and hardware sales were down 22.6%, below our estimate of down 15.3%. Our revenue estimate is below consensus due to the negative impact of foreign currency translation (Euro down 7% vs. the dollar in Q4, hurting sales by .1%) and weaker than expected hardware sales."

    Like Goldman, Wedbush is also looking for a conservative outlook. The company sees GameStop producing comps outlook below 2.2 percent. The firm said, "Despite a weak start to 2012, we expect a return to sales growth due to new hardware (PS Vita and Wii U) and high-profile software releases. Share repurchases alone could lead to EPS growth of over 10%."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out GameStop's past performance at Streetinsider's GameStop's Income Statement.

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