GameStop (GME +0.37%) may be turning its head in the right direction, but it's still going backward.
The leading video game retailer took some more steps back in its latest quarter.
Sales slipped 11% to $1.38 billion, fueled by a 10.7% slide in consolidated comparable-store sales. Profitability was cut in half to $10.5 million, or $0.09 a share.
However, the chain's stock still opened sharply higher today because the market was holding out for something worse.
Wall Street was settling for net income of just $0.04 a share on $1.36 billion in sales. GameStop's own guidance three months ago was calling for comps to slide by 12% to 16%. This morning's report may not be an absolute victory, but it's clearly a relative win over expectations.
This may also be the end of the retreat for GameStop's fundamentals, at least in the near term.
With Take-Two Interactive's (TTWO +0.92%) long-awaited Grand Theft Auto V hitting the market next month, GameStop's eyeing a profit of $0.50 a share to $0.55 a share this quarter with comps clocking in 11% to 15% higher. Analysts were betting on a profit of just $0.35 a share on lower global sales.
Things should also get even better during the holiday quarter for GameStop. Activision Blizzard's (ATVI +0.00%) Call of Duty: Ghosts hits stores on Nov. 5, and that also happens to be the same month that Microsoft (MSFT 0.25%) and Sony (SNE 0.85%) will introduce their new consoles.
GameStop is revealing positive preorders for Microsoft's Xbox One and Sony's PS4. The 6,505-store chain also notes that it's receiving a larger allocation of the new consoles at the time of launch. With the two systems hitting the market so close to each other, it was a safe bet that they weren't going to try to limit the initial supply to drum up demand. That could be a losing bet this holiday season. However, it's still encouraging to know that GameStop will be selling a lot of the new systems for November's launch.
GameStop now sees comps clocking in between negative 3.5% and 1.5% for the entire year. That may not seem so great, but it's the second quarter in a row in which the retailer has raised its view. It's a welcome contrast to last year, when it lowered the midpoint of its same-store sales guidance four times.
GameStop's also raising its earnings outlook, though that is at least partly the result of its ambitious share buyback program. GameStop's now targeting per-share income to come in between $3 and $3.20, even though Wall Street's already perched at the higher end of that revised range by forecasting a profit of $3.15 a share ahead of the report.
There's going to be a lot of heavy lifting at the hands of Take-Two, Activision Blizzard, Microsoft, and Sony here to justify GameStop's stock having nearly tripled over the past year, but until GameStop reverts back to its 2012 form and begins whacking away at its own guidance, it's hard to deny the chain's positive momentum.
