GameStop Corp. (NYSE: GME)
Earnings Report
Before the market opened on Monday, GameStop Corp (GME) reported third quarter results that missed analyst estimates and sent shares tumbling in the premarket session. GME posted earnings of 54 per share on $2.02 billion in revenue while analysts were expecting 59 cents on $2.15 billion revenue. GameStop blames lower sales on weaker than expected demand on big name games like the new Star Wars BattleFront, Halo 5 and Assassin’s Creed Syndicate. Top executives do believe that demand will pick up on the new Star Wars game as we come closer to the release of the movie on December 18th, which could boost sales but I wouldn’t get your hopes up. I’ve heard mixed reviews for the game and couldn’t imagine that it will have a huge effect on sales going forward.
Chief Financial Officer of GME, Rob Lloyd, had this to say during the conference call following their earnings release:
“Sales decreased 3.6% in the quarter, but grew 1.2% excluding FX. Comparable store sales decreased 1.1% due primarily to slower-than-expected hardware sales. Gross margins expanded 280 basis points on the strength of growth and margin expansion in mobile and collectibles . . . As stated in our earnings release, we expect same-store sales to range from negative 1% to plus 6% and revenue growth to range from flat to plus 6%. Changes in foreign currency rates are expected to negatively impact revenues by $120 million when compared to the fourth quarter of last year and will negatively impact EPS by approximately $0.02 to $0.03 more than we planned earlier this year. We expect to continue to expand gross margins compared to the prior-year quarter as our mobile and collectibles businesses continue to grow. As I stated earlier, operating earnings for Tech Brands are expected to grow significantly in the fourth quarter.” TheStreet
This earnings release missed expectations but if the holiday season picks up steam and we have a great black Friday, which is usually the biggest shopping day of the year, we could see a spike in demand. We will just have to sit tight and see what plays out, but if you’re a strong believer the big games being released this might provide you with an opportunity to get in on a nice dip.
GME Technicals
Shares of GME got smoked in the premarket session following the dismal earnings release with shares opening at $33.25, down just over 15% from Fridays close of $39.26. Shares hit a low of $31.62 in the premarket before rebounding and trending up for the rest of the day to a close of $37.61. With the recent downtrend in the share price there looks to be a Death Cross forming on the daily chart over the next week or so that could put even more pressure on share prices. The $40 mark is an important price level to watch as it will create resistance for any upside movement followed by the 200 day moving average level that is currently sitting at $42.25. Support should come in around the $35 price level but with the flush down to the low of $33 yesterday it may not provide a ton of support. Would really like to see some consolidation around these levels before the next move.
Looking at the bigger picture, GME was in a nice uptrend throughout the year until this latest earnings release. They opened the year at $35.99 with lows coming in at $31.69 and highs of $47.83 back in August. There was a lot of consolidation around the $40 and $45 levels, which will act as major resistance levels going forward, and with yesterdays close of $37.61, GME is now only up 4.5% on the year. Analyst currently have an average price target of $47.40 but GME recently received a downgrade from Oppenheimer to a “Perform” rating versus its previous rating of an “Outperform”.
About GameStop Corp.
GameStop Corp. operates as a multichannel video game, consumer electronics and wireless services retailer, which offers customers the most popular games, hardware and game accessories for next generation video game systems and the PC. The company sells new and pre-owned video game hardware, physical and digital video game software, accessories, as well as PC entertainment software, new and pre-owned mobile and consumer electronics products and other merchandise. It operates electronic commerce web sites under the names www.gamestop.com, www.ebgames.com.au, www.ebgames.co.nz, www.gamestop.ca, www.gamestop.it, www.gamestop.es, www.gamestop.ie, www.gamestop.de, www.gamestop.co.uk and www.micromania.fr. The company also sells various types of digital products, including downloadable content, network points cards, prepaid digital and online timecards and digitally downloadable software. Its mobile business consists primarily of pre-owned mobile devices, tablets and related accessories. The company was founded in June 2000 and is headquartered in Grapevine, TX. MarketWatch
