GameStop Corp. (NYSE:GME) is creeping higher in anticipation of its second-quarter earnings release after the markets close today. What a difference a week makes, huh?
Last week, retailers were reeling after Target Corporation (NYSE:TGT) dropped the big red ball on its earnings announcement. That sent investors into a tizzy about the Q2 fate of over retailers, including Best Buy Co Inc (NYSE:BBY). Then, just six days later, BBY surged 20% after posting results that were “downright Amazon-like.”
The madness plays out in the GME stock chart, where GameStop shares run off a cliff thanks to Target, then suddenly pop thanks to Best Buy.
So, naturally that leaves GME stock kind of middling ahead of its own earnings report.
What the Market Expects for GME Stock
Analysts are predicting a per-share profit of 27 cents from the games peddler, down about 13% year-over-year. Revenue is expected at $1.72 billion, down 2% from last year.
But things could get even rougher for ol’ GameStop. The success of Pokemon Go could very well have eaten into physical game sales, at least according to Pacific Crest Securities analyst Evan Wilson.
However, Pokemon Go released as a free-to-play app on July 6, and as much of a phenomenon as it was, it didn’t even cannibalize other apps in the Apple Inc. (NASDAQ:AAPL) App Store or Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) Google Play store.
So, I seriously doubt that a month of people walking around on their phones also prevented them from buying Uncharted 4 or Overwatch. It’s digital downloads from Steam or through Microsoft Corporation (NASDAQ:MSFT) or Sony Corp (ADR) (NYSE:SNE) online stores that really pose the risk to GME.
Still, Piper Jaffray analysts believe the addition of the Xbox One S and an as-of-yet-unannounced PS4 “Slim” and PS4K (or PS4 Neo) will offset any declines in the coming quarters. For Q2, GameStop expects same-store sales between 4% and 7%. That compares to the 6% decline in comp sales in the first quarter.
With digital sales the threat that they are, GameStop has resorted to pushing collectibles and licensed merchandise. And it’s working. The sale of collectibles soared over 250% in Q1. GME anticipates some $450 million to $500 million in revenues from entertainment collectibles and merchandise for the full year and a cool billion in sales by 2019.
That’s not all. GME is also seeing traction in its consumer electronics and technology brands categories. The former increased by 41% last quarter, while technology brands jumped 62%.
If GME stock holders hope to see today’s gains locked in after the bell, then it’s these categories that will really make the difference.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
