GameStop’s Gambit: Innovate Faster Than the Market



GameStop Corp. (NYSE:GME) sweat some value on Thursday morning after the game retailer reported fourth-quarter and year-end results that didn’t quite match analyst expectations.

Total global sales increased 3.4 percent on the year in the fourth quarter to $3.68 billion, below the mean analyst estimate of $3.79 billion. Consolidated comparable store sales increased 7.8 percent on the year, a jump that was primarily driven by the launches of Microsoft’s (NASDAQ:MSFT) Xbox One and Sony’s (NYSE:SNE) PlayStation 4. For the year, sales increased 1.7 percent to $9.04 billion, below the mean analyst estimate of $9.15 billion.

“The launch of new consoles in 2013 marked the return of innovation to the video game category and GameStop’s market share increased to an all-time high,” said GameStop Chief Executive Paul Raines. GameStop has capitalized on its neutral position in the console wars between Microsoft and Sony, which have done much of the heavy lifting required to mobilize consumers.

“Our emerging digital and mobile businesses, which did not exist three years ago, surpassed $1 billion of revenue. As we push forward into 2014, both the re-energized video game category and our new Technology Brands business unit provide us with solid growth opportunities in the consumer electronics and wireless markets,” Raines added.

That Technology Brands segment includes Simply Mac, Spring Mobile, and Aio Wireless stores. Simply Mac does what its name suggests and acts as a retail and service station for Apple (NASDAQ:AAPL) products, while Spring Mobile and Aio Wireless do the same for AT&T (NYSE:T) post-paid and pre-paid products and services, respectively.

GameStop’s fourth-quarter net earnings fell about 15.5 percent on the year to $220.5 million, and earnings per diluted share fell from $2.15 to $1.89. These results included a goodwill impairment charge of about 20 cents per diluted share and a one-time accounting benefit of 18 cents per share. For the year, net earnings came in at $354.2 million, which compares against a net loss of $269.7 million in 2012. Earnings of $2.99 per diluted share in 2013 compare against a loss of $2.13 per share in 2012.

Looking ahead, GameStop is anticipating full-year sales growth of between 8 and 14 percent, and comparable store sales growth of between 6 and 12 percent. Earnings are expected in a range of $3.40 to $3.70 per diluted share, and net income is expected in a range between $398 million and $433 million.

This outlook reflects an aggressive commitment to innovation on GameStop’s part, a commitment that is necessary if the company is going to remain relevant in the rapidly changing market. To that end, the company recently announced the establishment of the GameStop Technology Institute (GTI), a quasi-academic business unit designed to “deliver business innovation and technology solutions to better address the needs of today’s empowered consumer.”

“Now more than ever, GameStop’s internal rate of change must continue to exceed the rate of change occurring within the retail environments in which we compete,” said Raines.

GameStop will be teaming up with IBM (NYSE:IBM) and the Center for Retailing Studies at Texas A&M University’s Mays Business School on the initiative. The GTI will use IBM’s cloud platform BlueMix to create “a hybrid cloud environment that will allow GameStop to add greater context around both in-store and online customer interactions. By seamlessly linking a customer’s online and in-store experiences using IBM’s open-standards based, high-value cloud platform, GameStop will be able to remove the complexity involved with transactions and improve the level of service that they deliver to their customers. Harnessing the power of BlueMix enables GameStop developers to quickly innovate, prototype and connect with their customers at the right time using APIs for big data, analytics and mobile.”

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