GameStop share price up as Q2 results beat estimates

GameStop Corp, the worlds largest retailer of video games and related products, reported on Thursday solid growth in second-quarter profit and revenue and boosted its full-year guidance, aided by the release of highly-awaited video games and growth in its new initiatives.

The company said that net profit for the three months ended August 1st rose 2.8% to $25.3 million, or $0.24 per share, from $24.6 million, or $0.22 a share, a year earlier. The period included one-time charges of $9.1 million, $7.8 million when deducting tax benefits, related to its acquisition of Geeknet.

Excluding the one-time charges, GameStops adjusted second-quarter net earnings were $33.1 million, a 34.6% increase compared to a year earlier, primarily driven by strong growth in the mobile and Other categories. Adjusted per-share earnings were up by an annualized 40.9% at $0.31 per share.

The company said unfavorable currency swings took away about $100 million of its sales but had minimal impact on earnings. Net sales rose by 1.8% in the second fiscal quarter to $1.762 billion but were up 7.4% on a constant currency basis. Same-store sales, which include online sales and sales at stores open for at least 12 months, jumped 8.1%, with the US contributing with 10.8% growth and international sales rising 1.8%.

The retailer had projected per-share profit of $0.21 – $0.25, with sales ranging from between a 3% contraction to remaining flat.

“Results for the second quarter again exceeded our expectations, reflecting the mix of sales in our market-leading video game business and the continuing success of our diversified segments,” said Chief Executive Paul Raines. “During the quarter, we increased the number of Technology Brands stores by 33% and completed the acquisition of Geeknet, continuing the expansion of our non-gaming businesses. We are excited about the growth prospects of these businesses and expect them to deliver sustained profits over the next several years.”

The company has benefited from the growing installed base of Sonys PlayStation 4 and Microsofts Xbox One consoles, as well as multi-platform releases. It said it expects the highly-awaited launch of game titles such as “Star Wars: Battlefront” and “Fallout 4” to make for a particularly strong fourth quarter but added that it wont benefit much from launches in the third quarter as most major games will debut towards its end. Second-quarter results received a hefty boost by the releases of “Batman: Arkham Knight” and “The Witcher 3: Wild Hunt”.

The video games segment saw new hardware sales drop 2.2%, or jump 3.7% in constant currency, while new software sales fell 6.0%, or rose 0.7% in constant currency, and pre-owned sales increased by 0.5%, or 5.1% in constant currency.

GameStop has been working on diversifying its business, including its technology brands segment which sells mobile phones and electronics, with Mr. Raines saying that most of the second-quarter growth came from the companys new initiatives.

Mobile and consumer electronics sales rose 26.9%, or 27.8% in constant currency, to $142.2 million, driven by a 62.3% increase in Technology Brands revenues.

The company has also been pushing ahead with its new licensed merchandise and collectibles business, with strong sales in the segment driving a 37.7% increase, or 48.5% in constant currency, in the Other category. Mr. Raines said the “loot” business, which carries a higher margin than video games, is expected to grow to $500 million per year by 2019. GameStop completed the acquisition of Geeknet in July, which will allow the collectibles businesses to offer exclusive items and video games.

The company said it expects same store sales to grow by 1.0% to 4.0% during the third fiscal quarter. For the full year, it pegged same store sales growth at 2.0% – 7.0% and boosted its adjusted EPS guidance range from $3.63 – $3.83 to $3.66 – $3.86 to reflect a reduction in outstanding shares.

GameStop Corp settled 1.85% higher at $46.20 per share on Thursday in New York, up 7.47% year-on-year and 36.69% year-to-date. The company is valued at $4.93 billion. According to CNN Money, the 16 analysts offering 12-month price forecasts for GameStop Corp have a median target of $49.00, with a high estimate of $58.00 and a low estimate of $29.76. The median estimate represents a 6.06% increase from the last price of $46.20.

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