GameStop's profit forecast disappoints, shares fall

Reuters News
Posted: Nov 21, 2013 8:50 AM
GameStop's profit forecast disappoints, shares fall

By Chandni Doulatramani and Malathi Nayak

(Reuters) - GameStop Corp forecast worse-than-expected earnings for the crucial holiday quarter, dashing hopes that new game consoles from Sony Corp and Microsoft Corp will fire up sales for the U.S. videogames retailer.

Shares in the company slid 6 percent even after the company raised its full-year profit outlook, as many investors had hoped for an even stronger finish to 2013, driven by the first new gaming consoles in years from the industry's top hardware manufacturers.

The fourth quarter typically accounts for a big chunk of the company's annual revenue and earnings. On Thursday, the company said it expected fourth-quarter earnings of $1.97 to $2.14 per share, falling short of the $2.15 that analysts had expected on average.

Making a forecast for 2013's final quarter was difficult, despite a promising start to sales of the just-launched PlayStation 4 from Sony and strong pre-orders of the Xbox One from Microsoft, GameStop Chief Executive Officer Paul Raines said .

"When we start estimating console cycles, we understand that there are always allocation challenges, import challenges so we've tried to make what is a reasonable expectation of growth for the fourth quarter. But some investors want us to be even more aggressive," Raines said.

Despite exercising caution, the company expects to end the year on a high note, driven by sales of new consoles and games this holiday season. It raised its full-year earnings per share forecast to a new range of $3.08 to $3.25, from $3.00 to $3.20 previously.

The company also raised its outlook for full-year comparable sales growth to 1.5 percent to 4.5 percent, from a previous forecast of down 3.5 percent to up 1.5 percent.

Some investors might have been disappointed as they expected more from GameStop over the holidays, Sean McGowan, an analyst at Needham & Co, said.

"But the fact is they are on the cusp of a very strong product cycle, which should leave the outlook for 2014 and 2015 very rosy," McGowan said.

Sales of videogame products such as consoles have been pressured by lower-priced online offerings and as gamers spend more time on tablet computers and phones. But the arrival of new game consoles -- after a gap of eight years-- and games should reignite the market, analysts say.

Total U.S. sales of videogame hardware and software rose 5 percent in October from a year earlier, slowing from 27 percent growth in September, according to market research firm NPD.

GameStop reported net income of $68.6 million, or 58 cents per share, in the third quarter, compared with $47.2 million, or 38 cents per share, a year earlier. The Grapevine, Texas-based company said revenue rose to $2.11 billion.

Analysts had expected earnings of 57 cents per share on revenue of $1.98 billion.

Third-quarter software sales rose about 43 percent, fueled by robust sales of Take-Two Interactive Software's blockbuster Grand Theft Auto V. Hardware sales rose about 15 percent, driven by sales of Nintendo's 3DS and 2DS handhelds, the company said.

GameStop shares, which have risen nearly 6 percent in the last three months, relinquished most of those gains on Thursday and were down at $49.50 in the afternoon.

(Reporting by Chandni Doulatramani in Bangalore and Malathi Nayak in San Francisco; additional reporting by Soham Chatterjee; Editing by Don Sebastian, Chris Reese and Andrew Hay)