GameStop Posts Fair Earnings but is Optimistic on Upcoming Console Releases

Jacob Harper |

Retailers in general are moving away from physical media towards the digital model, as companies like Best Buy Co. Inc (BBY) devote less and less floor space to CDs and DVDs and Redbox operator Outerwall Inc. ($OUTR) desperately scramble to branch out into other services. It looked like used video game retailer GameStop Corp (GME) was no different, and would likewise have to adapt or wither away.

A superficial look at their second quarter profits from 2013 suggests they are indeed going the way of the Blockbuster Video. In their second quarter 2013 earnings report, the game retailer revealed profits fell 50 percent for the company. Additionally, same store sales dropped 11 percent, suggesting the sea change to digital is indeed killing the company.

However, GameStop beat earnings expectations, and revealed positive news on two fronts. Digital receipts for the company grew 17 percent. Also, the retailer voiced optimism concerning one area of physical media that can’t be replaced by digital. It’s an area where they expect to shine through the rest of the year: video game consoles.

According to the retailer, over half of gamers expect to buy a new console this year, and GameStop’s CEO Paul Raines expects “a lot of energy” in that industry that should prop up the company for the foreseeable future.

So while physical content might have rocky future, the release of consoles like Sony Corporation’s (SNE) Playstation 4 and Microsoft Corp.’s (MSFT) Xbox One should more than compensate. Indications from Microsoft and Sony seem to confirm this.

On Aug. 20 Sony said preorders for Playstation 4 had already topped a million, exceeding their own expectations. The company announced on Aug. 21 that the console will hit stores on Nov. 15.

Microsoft will release the anticipated Xbox One sometime in November. The tech giant previously reversed controversial gaming restrictions, which would have severely hampered the ability of GameStop to sell used games, which significantly invigorated the retailer’s outlook.

GameStop outlook continues to brighten. The retailer calls for earnings to increase significantly in the coming quarter, and expects same-store sales to rise between 11 and 15 percent.

For their second quarter 2013 earnings report, GameStop reported a net profit of $10.5 million, or $0.09 per share, versus the net profit of $21 million, or $0.16 per share, from the same period a year ago. Revenue for the quarter was $1.38 billion, as compared to $1.55 billion from the previous year. Analysts were expecting a profit of $0.05 per share on revenues of $1.36 billion.

GameStop is up 10.88 percent to hit $52.80 a share.

(image of GameStop courtesy of Wikimedia Commons)

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
BBY Best Buy Inc 32.08 -0.57 -1.75 2,898,398
GME GameStop Corp 32.80 -0.10 -0.30 2,118,516
MSFT Microsoft Corporation 49.87 -0.03 -0.06 48,411,684
OUTR Outerwall Inc 41.31 1.23 3.07 1,607,940
SNE Sony Corp American Dep Shs (New) 24.10 -0.16 -0.66 2,256,863

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