GameStop Has a Lot to Prove
The fundamentals at GameStop don't match the stock chart. Keep that in mind as the leading video game retailer reports quarterly results tomorrow morning.
Gamestop shares have more than tripled since bottoming out last summer, and it's not as if the chain is doing any better now than it was a year ago. Analysts see earnings per share tumbling 75%, to $0.04 a share, with sales diving 12%, to $1.36 billion.
Back in May, GameStop told investors to brace for comps to decline by as much as 16% during the quarter. The silver lining in that report is that -- after four consecutive quarters of whacking away at its comps guidance -- GameStop actually raised the midpoint of its same-store sales outlook for the entire fiscal year.
Let's be fair... no one is buying GameStop based on the past. Investors are hoping that the next few months will be spectacular for the console gaming industry. Take-Two Interactive will kick things off next month with the long-anticipated Grand Theft Auto V. The last installment set an initial sales record before Activision Blizzard's Call of Duty franchise became the one to beat.
November should be even better, and not just because Call of Duty: Ghosts is coming out during the first week of that month. The new Xbox One and PS4 platforms will hit the market. Hardware is a low-margin wading pool for GameStop, but it will encourage gamers to trade in their older systems and software, where GameStop's margins are at their best. Naturally, gamers buying new systems will want to feed them new games, even though the systems will be better suited to cut out GameStop via digital delivery.
In short, GameStop's going to sink or swim tomorrow based on its guidance. The quarter itself won't matter. We know it's bad. We know folks aren't buying disc-based games or systems. GameStop investors naturally hope that players are merely waiting for the Xbox One and PS4 to come out, and even GameStop's guidance will only be able to guess on that front, despite having access to preorder information.
GameStop's stock leaves the retailer with plenty to justify tomorrow. Let's see if it comes out to play.
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The article GameStop Has a Lot to Prove originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive . The Motley Fool owns shares of Activision Blizzard and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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