Does GameStop's Guidance Show the Turnaround Continues Stalling?

Retail

Published: March 26, 2015 4:51 pm

Last Updated: March 27, 2015 6:46 am

GameStop Corp. (NYSE: GME) has gone through its own turnaround efforts, but its shares have not participated with the bull market for over a year now. The video game retailer really cannot seem to catch any breaks on its earnings. A fair amount of these problems are stemming from the company-given guidance. At what point does this company have to admit that the challenges of being a retailer of video games has simply become a very daunting challenge?

GameStop reported its fourth-quarter financial results Thursday after the markets closed as $2.15 in earnings per share (EPS) and $3.48 in revenue, compared to Thomson Reuters consensus estimates of $2.16 in EPS and $3.62 billion in revenue. The fourth quarter from the previous year had $1.90 in EPS and $3.68 billion in revenue.

Note that revenues decreased by 5.6% from the fourth quarter of the previous year, only a decrease of 2.8% on a constant currency basis.

The company gave guidance for the first quarter, as well as the full year. Additionally, the foreign currency exchange was estimated to have a negative impact of approximately $300 million to $400 million on revenue and $0.06 to $0.09 on full year EPS.

ALSO READ: GameStop and the Death of Traditional Video Game Sales

Total sales for the first quarter are expected to be increase -2% to 1%, and EPS is estimated to be in the range of $0.53 to $0.60. There are consensus estimates of $0.66 in EPS and $2.13 billion in revenue.

During the fourth quarter of 2014, the company repurchased 1.63 million shares at an average price of $37.83 per share, or $61.7 million of stock.

On March 3, the video game retailer announced a 9% increase of its regular annual cash dividend from $1.32 to $1.44 per share.

Paul Raines, CEO of GameStop, had nothing to say but good news in the release, despite the weaker guidance:

We achieved our highest market share in history with 28% share of next-generation hardware, 46% share of next-generation software and an estimated 42% share of downloadable content. Meanwhile, our Technology Brands segment exceeded expectations, contributing 5% to our operating income and to our highest-ever annual gross margin of 29.9%, as we rapidly expanded the footprint of our AT&T wireless and Apple retail businesses.

In the days ahead of earnings, GameStop has received a few analyst calls:

B. Riley reiterated a Buy rating with a price target of $64, implying upside of 63%.
Oppenheimer maintained a Buy rating with a price target of $45, an upside of almost 10%.
Credit Suisse had a Hold rating with a price target of $42.

ALSO READ: 7 Serious Stock Splits Needed Now

Shares of GameStop closed Thursday down 2.6% at $38.79. Following the release of the earnings report, shares were down another 2% at $37.95 in after-hours trading. Right at 500,000 shares of GameStop had traded hands in the first 45 minutes of the after-hours trading session. The stock has a consensus analyst price target of $47.37 and a 52-week trading range of $31.69 to $46.59.

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