- Digital sales outpacing physical game sales so far this year
- Top end of 4Q profit forecast short of estimates by 5 cents
GameStop Corp., the largest video-game specialty retailer, posted earnings and a forecast that missed analysts’ estimates as physical sales of titles including Halo 5 and the much-anticipated Star Wars: Battlefront were weaker than the company expected.
Shares of GameStop declined 4.2 percent to $37.61 at the close in New York. Electronic Arts Inc., maker of the Star Wars game, fell 4.8 percent to $68.98.
GameStop is feeling the brunt of a shift in gaming toward mobile devices. In the first three quarters of the year, digital sales outpaced physical sales in the industry, according to analysis from market research firm SuperData. Besides Star Wars: Battlefront, which went on sale last week, GameStop also cited on a conference call Monday the underperformance late in the third quarter of Assassin’s Creed.
“Blockbuster, Radio Shack --- there’s a whole list of former retailers that have been dislocated by digital adoption, and I think eventually you can add GameStop to the list,” said Mike Hickey, an analyst at Benchmark Co. LLC who recommends selling the stock. “They’re going to need to close more stores and cut expenses.”
New game releases have typically been strong, yet consumers are increasingly choosing digital delivery, Hickey said. Referring to Halo, Microsoft’s most-popular gaming franchise, he said: “It did deliver. What it didn’t deliver is physical.”
Lower-than-expected software and hardware sales and delays in store openings affected the results, the Grapevine, Texas-based company said in a statement. Though the holiday season tends to bring more shoppers to GameStop locations, the chain reported weak Black Friday sales last November.
Third-quarter profit excluding some items was 54 cents a share on revenue of $2.02 billion, the company said. Analysts had predicted profit of 59 cents and sales of $2.14 billion, the average of estimates compiled by Bloomberg. GameStop said fourth-quarter earnings will be $2.12 to $2.32 a share. Analysts projected $2.37.
New hardware sales in its new game segments declined 20 percent in the third quarter, while new software sales fell 9.3 percent because of a “tough overlap of Destiny and Super Smash Bros” last year.
“Star Wars” collectible products are “pretty hot right now” and the company expects the new game to be “one of the strongest titles for the holiday season,” with the movie coming out in December, GameStop Chief Financial Officer Robert Lloyd said on the call.
Electronic Arts declined to comment.