GameStop Posts an Excellent Quarter -- Relatively Speakinghttp://www.fool.com/investing/general/2013/03/28/gamestop-posts-an-excellent-quarter-relatively-spe.aspx Andrew Marder
March 28, 2013
And like a dark horse out of the black night, GameStop (NYSE: GME) appears. The company did surprisingly well last quarter, considering that its original business model is slowly going the way of the buffalo. Earnings per share came in at $2.16, which was well above the $2.09 that Wall Street was looking for. The company had less-than-stellar sales last quarter, but made up for it by cutting costs. As a result, the bottom line improved more than anticipated.
But the success of last quarter isn't going to make it a great year, or at least not according to the company. GameStop is predicting a very soft first half of 2013, while gamers sit on their cash in anticipation of new consoles that will start coming out at the end of the year. Sony's (NYSE: SNE) PlayStation 4 is due out in time for Christmas, but not too far ahead of that. Here are some things to watch over the next few months.
So the first six months should be slow, but that doesn't mean bad. GameStop still gets almost 50% of its gross profit from used merchandise, and that's a market that can heat up when there aren't new games to be had. A slow first half might just mean that gamers try out older games that they missed the first time around, and dump current-generation consoles and games at a higher rate. That would be good news for GameStop, and it could help the company through the slowdown.
It could also flood the market with current-generation wares and drive down demand and prices for those games. That would be a big problem for GameStop, and would put a huge dent in profitability. Right now, that's the future that the company is expecting. It forecast an 8.5% drop in revenue for the current quarter, which is a fall even compared to last year's 6% decline. But so far investors seem undisturbed -- the stock is up more than 7% in midday trading.
What's coming down the pike