GameStop Corp. (NYSE:GME) shareholders are trading in GameStop stock in droves, with shares of the downtrodden video game retailer giving back 11% on a dismal outlook. And GME hasn’t even released its third-quarter numbers yet!
GME CEO Paul Raines was banking on new releases in October (including Titanfall 2, Battlefield 1, Gears of War 4) to spur software sales, but their performance was underwhelming:
“While the Technology Brands and Collectibles segments continue to grow rapidly, they will not offset the decline in gaming this quarter. We remain excited about the innovation coming into the video game category over the next twelve months, including virtual reality, the Sony PlayStation 4 Pro, the Nintendo Switch and Microsoft’s Scorpio. We also remain confident that our diversification strategy will provide long-term growth and shareholder value.”
In response, GameStop slashed its 2016 full-year expectations to a range of $3.65 and $3.80, far below the market’s expectation for $3.99. Further, comp sales are now looking to come in at a decline between 6.5% and 9.5% year-over-year, whereas previously GME was calling for a decline in the range of 1.5% to 4.5%.
The third quarter, too, is expected to see a larger decline than previously thought. The Street was hoping for earnings of 56 cents on revenue of 2.08 billion, but GameStop now forecasts per-share earnings with a midpoint of 47 cents on sales of $2 billion. Same-store sales for Q3 are expected to decline by as much as 7%.
The State of GME
You’d think the entire video game industry would be feeling the hit of dismal fall sales, but shares of Electronic Arts Inc. (NASDAQ:EA) are wafting higher after reporting better-than-expected earnings.
EA stock is up just shy of 2.5%, as the company’s revenue increased and its guidance boosted investor sentiment. It’s telling, too, of GameStop stock’s fall, that part of the reason EA expects such a robust holiday season is because its competitors will be unusually quiet. That doesn’t bode well for a retailer like GME, which depends on publishers across the board to release triple-A titles during the holiday selling season.
What’s more, EA derived 63% of its total net revenues from digital sales, up about 13% YoY — bad news for GameStop stock, as more people shopping in EA’s ecosystem means less people buying games through GME stores.
Bottom Line on GameStop Stock
However, the slump will likely be broken over the next year, as refreshed and new video game console announcements weighed on sales of current consoles, hurting GME’s hardware revenues in the third quarter.
Bloomberg reported earlier this month that GameStop was expected to sell out of the PlayStation VR from Sony Corp (ADR) (NYSE:SNE).
“If you find a PlayStation VR just grab it,” said GME CFO Tony Bartel . “This year demand will definitely outstrip supply.” Those results will be reflected in GME’s fourth-quarter earnings results.
We’ll also know more when Take-Two Interactive Software, Inc. (NASDAQ:TTWO) and Activision Blizzard, Inc. (NASDAQ:ATVI) report earnings after the close today and Thursday, respectively.
GameStop reports Q3 earnings after the close on Nov. 22.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
