GameStop Corporation (GME), the video game and entertainment software retailer, recently posted strong first-quarter 2011 results. The quarterly earnings of 56 cents a share surpassed the Zacks Consensus Estimate of 54 cents and rose 16.7% from 48 cents earned in the prior-year quarter driven by a 53% growth in digital sales.
The Zacks Consensus Estimate was stable prior to the earnings announcement with no upward or downward revisions in the analysts’ estimates in the past 30 days.
Behind the Headline
The Grapevine, Texasbased company, GameStop, posted total revenue of $2,281.4 million that came ahead of the Zacks Consensus Revenue Estimate of $2,231.0 million and climbed 9.5% from the year-ago quarter. The retailer stated that comparable-store sales increased 5.3% during the quarter, reflecting robust sales of HD console, the launch of the Nintendo 3DS and sturdy performance of PowerUp Rewards loyalty program.
By sales mix, new video game hardware sales went up 24.1% to $432.4 million, whereas sales of new video game software increased 4.8% to $914.7 million. Sales of used video games registered a growth of 9.5% to $625.0 million.
Despite a 9.9% increase in cost of sales, GameStop’s gross profit for the quarter expanded 8.7% to $620.2 million, whereas gross margin reduced 20 basis points to 27.2%. Operating income rose 5.3% to $131.1 million, whereas operating margin decreased 20 basis points to 5.8%.
Other Details
GameStop ended the quarter with cash and cash equivalents of $395.8 million and net receivables of $50.6 million. During the quarter, the company bought back 5.92 million shares at $19.88 each.
Management Guided
Moving forward, for the second quarter of 2011, GameStop anticipates comparable-store sales to be in the range of -2.0% to flat. GameStop expects earnings in the range of 20 cents to 23 cents per share.
For fiscal year 2011, the company stood by its earlier guidance and anticipates an increase of 3.5% to 5.5% in comparable-store sales with earnings in the range of $2.82 to $2.92 per share.
Currently, we have a long-term Neutral rating on GameStop. Moreover, GameStop, which competes with Best Buy Co. Inc. (BBY), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation, also correlates with our long-term view.
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