Shares of GameStop Corp. GME fell nearly 6% during aftermarket trading hours yesterday, after this video game and entertainment software retailer posted lower-than-expected fourth-quarter fiscal 2014 results. Disappointing hardware sales and forex fluctuations marred the company’s performance.
This Zacks Rank #3 (Hold) company delivered adjusted quarterly earnings of $2.15 per share that missed the Zacks Consensus Estimate by a couple of cents but increased 13.2% year over year. Earnings took a 5 cent hit from currency fluctuations.
Net sales were down 5.6% year over year to $3,476.1 million and came below the Zacks Consensus Estimate of $3,657 million. Consolidated comparable-store sales also declined 1.8% year over year due to launch of Sony’s SNE PlayStation 4 and Microsoft’s MSFT Xbox One in prior year quarter.
By sales mix, new video game hardware sales fell over 30.2% to $808.8 million owing to tough year-over-ear comparisons. On the contrary, new video game software sales grew 6.1% to $1,288.5 million.
Pre-owned and value video game products’ sales fell 1.7% to $729 million. Sales in the other category increased 22.7% to $149.9 million.
Video game accessories’ sales surged 9.9% to $268.4 million whereas sales in the digital category were down 19.8% to $53 million. Mobile and consumer electronics’ sales were up 31.2% to $178.5 million. Digital receipts grew 41% in the quarter.
The Technology Brands segment, which contributed 5% of the operating earnings, is expected to sustain its growth momentum, attributable to its collaboration with AT&T and the new range of Apple Inc. AAPL products.
While continuing to branch out, GameStop is transforming itself into a mixed retailer of physical and digital gaming, and electronics products. The company’s venture into digital, iDevice and gaming tablet businesses would be accretive to its results. Moreover, it is optimistic about the new game releases and robust growth potential of next-generation consoles.
During the quarter, gross profit increased 2.7% to $976.4 million while gross margin expanded 90 basis points to 28.1%. Operating income also increased 7.7% to $385.9 million, whereas operating margin contracted 140 basis points to 11.1%.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $610.1 million, net receivables of $113.5 million, long-term debt of $350.6 million and shareholders’ equity of $2,067.7 million.
During the quarter, GameStop bought back 1.63 million shares for $61.7 million, taking the total count to 8.44 million shares worth $33.4 million.
On Mar 24, 2015, the company paid quarterly dividend of 36 cents per share. The company had increased its annual dividend by 9% to $1.44 per share in the same month.
Guidance
Expecting softer sales of previous generation consoles and pronounced currency headwinds, GameStop expects sales growth in fiscal 2015 to range from negative 1% to positive 4%. Comps are expected to grow in band of 1%—6%.
For the first quarter, management forecasts sales growth in the range of negative 2% to positive 1% and comps to rise in the band of 2.5% to 5.5%.
The company now envisions earnings in the range of $3.60 to $3.80 for the fiscal and between 53 to 60 cents for the first quarter.
The current Zacks Consensus Estimate for the first quarter and fiscal 2015 stands at 67 cents and $4.09 per share, respectively, and could witness downward revisions in the coming days.
GameStop expects to incur $150—$170 million in capital expenditures during the fiscal and to open 2015 with about 350—550 new Technology Brand stores.
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