Yahoo Finance GameStop: The Good, the Bad and the Ugly
GameStop (GME) shares have gained 19% this year and to keep that winning streak alive the video game retailer needs to maintain full year EPS guidance which it reiterated in January. One way the company can do that is by demonstrating that video game sales can offset some other major headwinds. We analyzed GameStop from the perspective of the Good, the Bad and the Ugly with Christine Short of Estimize.
Related: GameStop reports 2014 Holiday Sales Results
Good: Software Sales Rising
This is the company’s sweet spot and the key to future growth. “It’s not going to be about hardware this cycle, it’s going to be about software,” according to Short. Overall total industry sales of physical games rose 8% in February, according to NPD Group, powered by top-selling games The Legend of Zelda: Majora's Mask 3D and Call of Duty: Advanced Warfare. “Highly anticipated games did very well in the fourth quarter and the CEO says he expects those to sell well throughout the first quarter as well,” notes Short. GameStop’s new software sales rose 5.8% during the holiday period.
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Bad: Hardware Sales Declining
The bulk of new consoles such as Sony’s (SNE) PS4 and Microsoft’s (MSFT) Xbox One debuted in 2013 which is curbing demand. “Year-over-year comparisons are too difficult,” says Short who also notes this is not necessarily as bad as the headline number may suggest. “You kind of want a larger chunk of your total sales to be from software because hardware comes with lower margins and we certainly saw margins squeezed in the year ago quarter.”
Ugly: The Strong U.S. Dollar Stings Sales
On January 13, 2015, GameStop CEO Paul Raines cited the stronger U.S. dollar as negatively impacting total global company sales which declined nearly 7% to $2.94 billion during the holiday period. Since then, the U.S. dollar has advanced over 5% as tracked by the PowerShares DB U.S. Dollar Bullish ETF (UUP). GameStop garners about 30% of its sales from overseas, according to company filings, so Short expects the overhang to be a theme of forward guidance. “I would expect them to mention that heavily on their call.”
Related: Estimize.com data on GameStop
GameStop reports results after the close of trading on March 26, 2015. Followed by an investor conference call at 5:00 pm ET.
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