GameStop (GME) Trimmed Outlook On Soft Video Game Sales

Video game and entertainment software retailer GameStop Corporation’s (NYSE:GME) shares plunged 11.2% on Nov 2 after the company trimmed its third-quarter as well as fiscal 2016 projection. The company cited soft sales of new video games as well as the current sell-through rate of new video game hardware as the reason behind lowering its outlook.

Management now envisions third-quarter sales to be $2 billion, flat year over year. Same store sales are expected to decline in the range of 6% to 7% during the quarter under review. Earlier, the company had projected sales growth of 2% to 5%, while same -store sales were expected to range between a 2% decline and a 1% increase.

GameStop now foresees third-quarter earnings to be in the band of 45 cents to 49 cents. Previously, GameStop estimated to report earnings between 53 cents and 58 cents.

The dismal third-quarter projection compelled management to lower its fiscal 2016 outlook. GameStop now forecast earnings in the range of $3.65 to $3.80 compared with $3.90–$4.05 per share expected previously. It expects same store sales to decline in the range of 6.5% to 9.5%. The company earlier anticipated same store sales to decline in between 1.5% and 4.5%.

The company was optimistic that the new titles released in October would catalyze new software sales. However, they failed to boost sales growth in spite of gaining market share.

Sales growth in Technology Brands and Collectibles segments also failed to offset the decline in gaming during the third quarter. However, management remains optimistic about the innovation coming up in the video game category including virtual reality, the Sony PlayStation 4 Pro, the Nintendo Switch and Microsoft (NASDAQ:MSFT)'s Scorpio over the next one year period.

Other Picks in the Sector

Better-ranked stocks in the broader retail wholesale sector include Burlington Stores Inc. (NYSE:BURL) , Darden Restaurants Inc. (NYSE:DRI) and Fossil Group Inc. (NASDAQ:FOSL) . All these stocks carry a Zacks Rank # 2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

While Burlington Stores carries an expected long-term earnings growth of 18.4%, Darden Restaurants and Fossil Group have an expected earnings growth of 11.4% and 3.8% respectively in the upcoming three to five years.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>