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Will GameStop Load Positive Third-Quarter Results?

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GameStop (NYSE: GME  ) is expected to report third-quarter results on Thursday.  The company has faced slipping sales across all segments as competition grows from Wal-Mart Stores (NYSE: WMT  ) and (NASDAQ: AMZN  ) . A record-breaking video game did launch in the third quarter, but that might not help GameStop as much as its competitors. Should investors expect a soft third quarter?

The video game retailer stands apart with its strong focus on used games and an associated trade-in credits program. But Amazon (NASDAQ: AMZN  ) also sells used games, and the online retailer and Wal-Mart (NYSE: WMT  ) both offer additional advantages for game shoppers. That could spell more trouble for GameStop's sales.  

Here's what to look for in the third quarter earnings release. 

Revenue and EPS to beat
Analysts estimate third-quarter revenue of $2.08 billion and earnings per share of $0.57. GameStop has met or exceeded estimates for both metrics for the past five quarters. The company forecast an EPS range of $0.50 to $0.55. 

GameStop reported revenue of $1.8 billion in the third quarter last year, which would make for 11% growth this quarter if the company meets estimates. EPS last year was $0.38. Comparable-store sales for the quarter were down more than 8% from the prior year. 

For GameStop to improve on the second quarter of 2013, the company will need to beat reported revenue of $1.4 billion and EPS of $0.09. Comps for the quarter were down nearly 11%.    . 

Segment sales to beat
In the third quarter last year, new game video software had sales of $770 million and accounted for more than 43% of total sales. New game software saw a 12% decline from the prior year. Used video games and new video game software also slipped in that quarter and were down 28% and 9%, respectively. 

New game software was down to 31% of total sales in the second quarter this year. Sales for the segment were down 9% year over year. Preowned games bumped up to become the leading segment, though that title still came with a 6% sales decline.  

Facing the competition
The third quarter featured the release of Grand Theft Auto V in October and the record-breaking sales could give GameStop's new game segment a boost. But the company faces fierce competition on both new and used games. 

GameStop faces new game competition from big-box retailers such as Wal-Mart that have the leverage to offer better discounts to customers. Wal-Mart also offers the advantage of picking up a new game while doing general shopping. But used games have become GameStop's primary segment, and Wal-Mart doesn't sell pre-owned games -- but Amazon does. 

The online retailer shows listings for used versions of the majority of products sold through the site. That established reputation combines with the numerous used listings that allow for better bargain shopping to make Amazon seem a sweeter deal for many game buyers.  

Foolish final thoughts
GameStop has done pretty well at meeting analyst estimates. But to really earn investor confidence, the company needs to show segment sales growth and comps improvements. 

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