Please ensure Javascript is enabled for purposes of website accessibility

GameStop Corp. Earnings Fall as Video Game Sales Suffer

By Demitri Kalogeropoulos - May 27, 2016 at 12:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here are the highlights of the retailer's first-quarter earnings results announced this week.

Specialty retailer GameStop (GME 0.92%) announced quarterly results on May 26. Sales and profits declined under the strain of a shrinking video game market. Still, GameStop enjoyed healthy growth in its new business categories, and management reiterated its outlook for solid earnings in 2016.

Here's how the headline results stacked up against the prior-year period:

 Metric

Q1 2016 Actuals

Q1 2015 Actuals

YOY Growth

Revenue

$2 billion

$2.1 billion

(4%)

Net income

$66 million

$74 million

(11%)

Earnings per share

$0.63

$0.68

(7%)

YOY = year over year. Data source: GameStop's financial filing.

What happened this quarter?

As expected, GameStop revenue declined in comparison to a year-ago quarter that had benefited from elevated demand for gaming consoles and several hit video game releases. Overall, comparable-store sales fell 6%. In other words, they fared slightly better than the 8% drop executives forecast back in March.

Other highlights of the quarter include:

  • GameStop endured a 29% drop in new video game hardware sales and an 8% dip in new game sales. A slight increase in PlayStation 4 and Xbox One game sales wasn't enough to offset a huge decline in prior-generation games.
  • The profitable pre-owned gaming business slipped as well, falling 4%.
  • Strong growth in the accessories, collectibles, and mobile and consumer electronics divisions almost completely offset those declines.
  • These growth areas are more profitable than GameStop's shrinking categories, which helps explain why gross profit increased to $676 million, or 34% of sales, from $639 million (that is, 31% of sales) a year ago.
  • Higher expenses helped push bottom line profitability down to 3.3% of sales from 3.6%.

What management had to say

CEO Paul Raines said the management team was pleased with the first quarter performance, given the weak industry environment. "We exceeded our first quarter same store sales and EPS guidance in a challenging retail environment due to the outperformance of our non-physical gaming businesses," he explained.

These segments include GameStop's technology brands, and digital and collectibles divisions, which all add up to over 40% of operating earnings. The retailer predicts that general story will keep playing out as the year progresses. "We expect these trends to continue in the second quarter as digital receipts continue to grow, technology brands store base continues to mature, and collectibles sales continue to expand," Raines said.

Looking forward

GameStop forecast another quarter of shrinking growth ahead: Second quarter comps should decline between 4% and 7%, management projected. However, it left its full-year sales and profit forecast in place. It calls for just a slight comps drop of 2% and profit growth to roughly $4 per share.

That forecast is consistent with management's plan to boost profitability by building up complementary businesses as the video game market goes through its digital disruption. Raines and his team target having over 50% of operating earnings come from sources other than physical gaming by 2019, and GameStop is well on the way to meeting that goal.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$123.42 (0.92%) $1.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.