May 17, 2012
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of video-game retailer GameStop (NYSE: GME ) fell 10% today after releasing earnings.
So what: Sales fell 12% to $2 billion, falling short of estimates, as same-store sales fell 12.5%. Earnings were $0.54 per share, two cents better than expected, but the company's prediction of earnings between $0.10 and $0.18 in the second quarter fell well below expectations, and the stock is down as a result.
Now what: For quite some time, GameStop has been a company on the decline, but the pace is staggering at this point. The game-console cycle and a lack of blockbuster games are hurting results, and by the look of the forecast, management doesn't expect it to get better. Shares trade at less than six times the current year's estimates, but I'm not falling into this trap today. A retailer in decline isn't a good bet, and as much as I like games, I don't see a turnaround in GameStop's fortunes.
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