GameStop (NYSE:GME) stock jumped as much as 8.7% this morning after the company posted surprisingly strong first-quarter earnings result. By 10:45 a.m., the stock was up about 6.5% from the previous close.
Sales and profits both came in ahead of Wall Street's, and management's, forecasts.
|Revenue||$2.0 billion||$2.06 billion|
|Earnings||$0.59 per share||$0.68 per share|
Market share record
The video game retailer booked a 9% jump in comparable-store sales, or twice the projection that management issued in late March. That growth came courtesy of a solid increase in new software sales. The category rose by 10% to hit $614 million as GameStop increased its already dominant hold on the video game market. Its share of the new software sector grew to a first-quarter record 45%.
Revenue from digital channels also bounced up 23%, thanks to strong sales of downloadable content and full-game purchases such as Evolve and Mortal Kombat X. Impressively, that growth rate is on par with what video game publishers Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI) have been posting. However, digital sales are a much lower portion of GameStop's business, representing less than 3% of total revenue as compared to over 40% for EA and Activision.
Meanwhile, GameStop made progress in diversifying into complementary business lines during the quarter. It opened 65 new stores under its tech brands initiative, which includes mobile service (under the Spring Mobile brand) and consumer electronics (under the Simply Mac brand). As a result, tech brands sales jumped 34% and accounted for 7% of companywide sales, up from 5% a year ago.
"Our first quarter results exceeded expectations, displaying our market leadership and our ability to drive and leverage our core video game business and expand our diversified businesses to deliver healthy profits and solid top-line growth," said CEO Paul Raines in a press release. "This performance confirms that our effort to transform GameStop into a family of specialty brands is the right strategy to drive durable revenues and shareholder value."
Profitability and outlook
The company's 15% profit improvement beat management's March guidance as profitability held steady at 31% of sales. Expenses fell, however, which explains why operating earnings rose to 6% of sales from 5.3% in the prior-year period.
That improving picture gave GameStop executives confidence to raise the company's 2015 profit outlook. They see earnings reaching as much as $3.83 per share, up from prior guidance of $3.80. The full-year comps forecast stayed put at growth of between 1% and 6%.