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Why GameStop Corp. Stock Plunged Today

By Steve Symington – Nov 2, 2016 at 2:59PM

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The video-game retailer plunged on weak preliminary third-quarter results.

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What: Shares of GameStop Corp. (GME 2.31%) were down 12.5% as of 1:30 p.m. EDT Wednesday after the video-gaming retailer announced disappointing preliminary third-quarter 2016 results.

So what: GameStop isn't slated to formally release full quarterly results until November 22, 2016. But based on a combination of sales trends for recently released titles and sell-through rates of new video-game hardware, GameStop now expects third-quarter revenue will be approximately $2.0 billion, including a comparable-store sales decline of 7% to 6%. On the bottom line, GameStop expects earnings per diluted share to be in the range of $0.45 to $0.49.

By comparison, when GameStop released second-quarter results in August, it provided guidance for third-quarter comparable-store sales to suffer a more modest decline in the range of 2% to 1%, with earnings per diluted share of $0.53 to $0.58.

Now what: "Our expectation was that the new titles released in October would provide a catalyst for new software sales, but despite gaining market share, the titles underperformed our forecasted sales," explained GameStop CEO Paul Raines. "While the Technology Brands and Collectibles segments continue to grow rapidly, they will not offset the decline in gaming this quarter. "

To his credit, Raines also insisted the company remains "excited about the innovation coming into the video-game category over the next 12 months," namely, with the arrival of new virtual-reality products and consoles, including Sony's Playstation 4 Pro, Nintendo Switch, and Microsoft's Project Scorpio. 

Nonetheless, in the meantime, GameStop reduced its full-year outlook to call for comparable-store sales declines of 9.5% to 6.5% (compared to previous guidance for declines of 4.5% to 1.5%), and earnings per diluted share of $3.65 to $3.80 (down from a range of $3.90 to $4.05 previously). As such, it's no surprise to see investors bidding down shares of GameStop today.

Steve Symington has no position in any stocks mentioned. The Motley Fool has the following options: short January 2017 $28 puts on GameStop. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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