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How GameStop is Stepping Up

Ben Popkin
November 9, 2013

Since 2008, electronics stores have experienced a 38% decline in same store sales.  GameStop (NYSE: GME) has had negative same store sales for the past nine quarters, and it has been implementing digital and mobile businesses to keep customers buying games. With the next-generation console launch approaching, the company has the potential to close the year profitably. 

Margin power up
GameStop was initially a purely physical game store. Now it has transformed into a hybrid digital and physical retailer. Despite this internal shift, the company has seen sales struggle during 2013. During its most recent quarter, the company's global comps and sales were down 11.6% and 10.7%, respectively.

While the brick and mortar stores were struggling, the company's digital revenue increased 18% year over year to $158 million thanks in part to exclusive downloadable content. Mobile revenue increased 121% year over year to $55 million. The growth of GameStop's digital and mobile businesses helped increase gross margin 130 basis points to 34.8% during its most recent quarter.

GME Gross Profit Margin (Quarterly) Chart

GME Gross Profit Margin (Quarterly) data by YCharts

The chart shows that, despite seasonal trends, GameStop's gross profit margin has had continued growth. This shows that the changes that the company has made to drive digital and mobile business are helping it retain more of every dollar earned.

Despite lower same store sales, GameStop beat analyst earnings estimates by $0.02. The company's biggest quarter has yet to happen.

Next generation
Sony (NYSE: SNE) and Microsoft (NASDAQ: MSFT) are about to release their next-generation gaming consoles on Nov. 15 and Nov. 22, respectively. The launch will be the biggest console launch in video game history, with PS4 and Xbox One game pre-orders having already reached 725,000 and 525,000 units, respectively. The PS4 is slightly cheaper at $399 than the Xbox One at $499, which is partially because the Xbox comes with a Kinect, Microsoft's gaming camera.

While we don't know for certain which console (*cough* PS4 *cough*) will move the most units, both have sold out of pre-orders for launch day.  With these massive launches, game retailers like GameStop and its competitor Best Buy stand to profit from the excitement.

GameStop's conso