GameStop Earnings: Deep Stock Analysis for Investors

The following is an excerpt from a report compiled by Michael Pachter of Wedbush Securities.

GameStop’s (NYSE:GME) Q3 EPS exceeds guidance and estimates. Revenue was $1.77 billion, compared with our estimate of $1.74 billion, and consensus of $1.80 billion. EPS was $0.38, compared with our estimate of $0.34, consensus of $0.32, and guidance of $0.28 –0.36. The upside was from cost control and margin expansion as sales mix shifted towards the higher-margin Other category, which includes digital and mobile.

The company narrowed FY:12 guidance for comps to down 9.0-6.0% from down 10.0% – 2.0%, and maintained guidance for EPS  of $3.10-3.30.  In a challenging environment for video game sales, the company still expects to deliver EPS that is 8-5% above last year’s, likely because  of  share repurchases, expansion in digital and mobile (higher-margin), and expense management. Initial Q4 guidance is for comps of down 7.0-up 1.0%. The company narrowed Q4 EPS guidance to $2.07-2.27 from previous implied Q4 guidance of $2.04-2.32.

Q4 EPS guidance represents 20-31% growth above GameStop’s most profitable quarter ever, largely due to lower share count. Q4 includes the year’s most high-profile releases, including the next Assassin’s Creed, Call of Duty, and Halo. In addition, Nintendo (TYO:7974) will release the Wii U on Sunday. Q4 profitability will also benefit from repurchases and mix shift towards digital and mobile.