GameStop Corp’s. GME first-quarter fiscal 2015 earnings per share of 68 cents topped the Zacks Consensus Estimate of 58 cents while rising 15.3% year over year. Higher software sales due to releases of new titles in quarter along with strong sale of downloadable content were the driving factors.
Revenues of $2,060.6 million also beat the Zacks Consensus Estimate of 2,011 million and grew 3.2% year over year. Shares were up 6% in the after-market trading yesterday.
Consolidated comparable-store sales increased 8.6% year over year driven by double digit comps growth across Australia and Canada. Domestic comps were up 9.1% while international comps increased 6.9%.
By sales mix, new video game hardware sales were almost same at $439.7 million owing to tough year-over-year comparisons. On the contrary, new video game software sales grew 9.6% to $613.6 million. Mobile and consumer electronics’ sales were up 33.9% to $136.8 million while Video game accessories’ sales, too, grew 3.7% to $150.5 million.
Weakness persists in the Pre-owned and value video game products’ category as sales fell 3.4% to $582.4 million. Increased in downloadable content for Evolve and Mortal Kombat X was ran down by currency headwinds leading to a 18% dip in digital sales to $46 million. However, on adjusted basis digital reciepts grew 17.2% to $222.2 million.
The Technology Brands segment, reported revenues of $102.2 million up 70%. This segment is expected to sustain its growth momentum, attributable to its collaboration with AT&T, Inc. T and the Apple Inc. AAPL.
During the quarter, gross profit increased 2% to $639 million whereas gross margin shrunk 40 basis points to 31% marred by shift in sales mix. Operating income increased 17% to $123.9 million, whereas operating margin expanded 70 basis points to 6%.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $369.8 million, net receivables of $99.5 million, long-term debt of $350 million and shareholders’ equity of $2,072.7 million.
During the quarter, GameStop bought back $46 million worth of shares and expects $200 million during fiscal 2015.
Guidance
Expecting pronounced currency headwinds and lower software sales, GameStop expects sales growth in second quarter of fiscal 2015 to range from flat to negative 3%. Comps are expected to be flat or grow up to 3%.
Titles in the current quarter Bewitcher 3 and Batman Arkham Knight will face tougher year over year comparisons with Mario Kart 8 and Watchdogs, leading to lower software sales. However, stronger performance in other categories will cushion operating margins in the second quarter.
The company now projects earnings in the range of 21 cents to 25 cents for the quarter. The Zacks Consensus Estimate is pegged at 20 cents. Given extensive buybacks, management has raised the fiscal 2015 earnings guidance to $3.63 to $3.83 per share from earlier projected range of $3.60 to $3.80 per share
GameStop expects to to open 450—550 new Technology Brand stores in the fiscal and expects to full year profits for the segment in the range of 30% to 40%.
At present, GameStop carries a Zacks Rank #3 (Hold). Other better ranked stock in the same sector includes Aaron's, Inc. AAN.
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