GameStop Sales Miss Analysts’ Estimates as Game-Buying Drops

  • Retailer may enter new retail categories, finance chief says
  • Profit meets estimates on sales of mobile phones, electronics

GameStop Corp., the video-game retailer that’s expanding into mobile phones and collectibles, posted second-quarter sales that missed analysts’ estimates in a tough quarter when there were fewer new titles.

Sales fell 7.4 percent to $1.63 billion in the quarter ended July 30, the Grapevine, Texas-based company said Thursday in a statement, missing the $1.71 billion average of analysts’ estimates compiled by Bloomberg. Net income rose 10 percent to $27.9 million, or 27 cents a share, matching Wall Street projections.

Industry July Video-Game Sales
Accessories -4%
*Top 10 Titles
Source: NPD Group

GameStop went into the quarter, typically the year’s slowest for video games, projecting a 4 percent to 7 percent decline in sales when newer stores are excluded and they dropped a sharper 10.6 percent. The company is becoming a retailer of AT&T Inc.-branded mobile phones and services through acquisitions, while emphasizing digital downloads and accessories sales in games.

GameStop tumbled as much as 7.1 percent to $29.87 Friday, the biggest intraday decline in three months. Through Thursday, shares had been up 15 percent this year.

This month, GameStop bought 507 AT&T wireless stores, part of an effort to reduce its dependence on video games as more players buy online and bypass traditional retailers. The deal expanded the company’s AT&T wireless stores to 1,421, making GameStop the largest authorized AT&T Mobility retailer.

In the second quarter, mobile and consumer electronics sales contributed almost 13 percent of GameStop’s revenue, up from 9.8 percent in the fiscal first quarter.

“I think the takeaway from the quarter is that our diversification strategy is
working,” Rob Lloyd, the company’s chief financial officer, said in an interview.

Mobile Phones

While game hardware and software sales were down industrywide, higher-margin businesses like mobile and consumer electronics didn’t let that impact profit, Lloyd said. In July, U.S. spending on game hardware declined 30 percent from a year earlier, according to researcher NPD Group, led by a drop in console sales as consumers await new versions of the game devices.

GameStop plans to increase its total store count to 2,000 stores by the end of 2019 by purchasing additional AT&T resellers, Lloyd said. The company may also be open to “an acquisition of a retail concept in a different space,” and to selling new types of goods, he said. “There’s not much that we ruled out.”

GameStop forecasts comparable third-quarter store sales to range from a gain of 1 percent to a drop of 2 percent. The company expects quarterly profit of 53 cents to 58 cents a share. Analysts on average project revenue of $2.07 billion and profit of 54 cents.

Sales should benefit later this year as console manufacturers Sony Corp. and Microsoft Corp. launch new hardware, and game publishers release new titles, such as Battlefield 1, Michael Pachter, an analyst at Wedbush Securities, said in an interview before the earnings were announced.

“We have better games in the month of October than we had last year,” Pachter said.

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