GameStop Corporation (GME), the video game and entertainment software retailer, recently posted fourth-quarter 2010 results.
Street analysts had nearly a week to ponder on the news. In the subsequent paragraphs, we will cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Earnings Report Review
GameStop’s quarterly earnings of $1.56 a share came in line with the Zacks Consensus Estimate and rose 20.9% from $1.29 earned in the prior-year quarter driven by digital offerings, power up rewards loyalty program and e-commerce inventiveness.
The Grapevine, Texas based company, GameStop, posted total revenue of $3,692.8 million that fell short of the Zacks Consensus Revenue Estimate of $3,710.0 million but climbed 4.8% from the year-ago quarter. The retailer hinted that comparable-store sales inched up 2.6% during the fourth quarter.
Moving forward, for the first quarter of 2011, GameStop anticipates net sales to increase in the range of 6.0% to 8.0% with a surge of 4.0% to 6.0% in comparable-store sales. GameStop expects earnings in the range of 53 cents to 55 cents per share.
For fiscal year 2011, the company anticipates net sales to increase in the range of 6.0% to 8.0% with a rise of 3.5% – 5.5% in comparable-store sales. GameStop expects earnings in the range of $2.82 to $2.92 per share.
(Read our full coverage on this earnings report: GameStop Reports In line)
Agreement of Estimate Revisions
Clearly, a mixed sentiment is palpable among analysts, following the earnings release. In the last 7 days, 13 out of the 17 analysts covering the stock increased their estimates while none lowered the estimate for first-quarter 2011. For second-quarter 2011, 5 analysts revised their estimates in the upward direction, while 6 analysts chopped their estimates in the last 7 days.
For fiscal 2011, 7 analysts have increased their estimates in the last 7 days, while 4 lowered the projection. For fiscal 2012, 6 analysts revised their estimate in the upward direction, while none lowered the estimate.
Magnitude of Estimate Revisions
In the last 7 days, the Zacks Consensus Estimate for fiscal 2011 remained flat at $2.92, and for fiscal 2012, the Estimate climbed by 14 cents to $3.17.
For the first-quarter 2011, the Zacks Consensus Estimate inched up 3 cents to 54 cents, and for the second-quarter 2011, it inched down by a penny to 28 cents a share in the last 7 days.
The current Zacks Consensus for first-quarter 2011 is pegged from a low of 53 cents to a high of 57 cents. For fiscal 2011, the estimates range from $2.80 to $3.10.
We believe that GameStop is well positioned to take advantage of the growing market for video game products and PC entertainment software. The company’s strategy is to grow through store expansions in favorable localities, by providing the largest title collection of video games, and by leveraging its first-to-market distribution network to offer the latest hardware and software releases.
Further, GameStop holds a significant position in the used video game products market. The company provides a greater selection of used video game products for both current and previous generation platforms. The market for used video game products has been resilient to the recent economic downturn.
However, the video game industry is highly competitive, and video game shoppers now have many alternatives to buy software, hardware, and game accessories for video game systems and personal computers. Retail heavyweights have also entered the video game market. The large retailers could dent GameStop’s sales and margins.
Currently, we have a long-term ‘Neutral’ rating on GameStop. Moreover, GameStop, which competes with Best Buy Co. Inc. (BBY) and Amazon.com Inc. (AMZN), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, also correlating with our long-term view.