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GameStop's (GME) Q4 Earnings Likely To Fall: Here's Why

By Zacks Investment ResearchStock MarketsMar 19, 2019 11:58PM ET
GameStop's (GME) Q4 Earnings Likely To Fall: Here's Why
By Zacks Investment Research   |  Mar 19, 2019 11:58PM ET
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GameStop Corp. (NYSE:GME) is scheduled to report fourth-quarter fiscal 2018 results on Apr 2, after market close. In the trailing four quarters, the company’s bottom line missed the Zacks Consensus Estimate by average negative surprise of 1.6%. However, it delivered a positive earnings surprise of 19.6% in the last reported quarter. Let’s see what awaits this quarterly release.

How are Estimates Faring?

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.59, reflecting a 21.3% decline from $2.02 per share registered in the year-ago quarter. Notably, the consensus mark has remained stable over the past 30 days. For revenues, the consensus estimate stands at $3,284 million, down approximately 6% from the year-ago quarter’s figure.

For fiscal 2018, the Zacks Consensus Estimate for earnings is pegged at $2.70, reflecting a decline of 19.2% year over year. For revenues, the consensus mark stands at $8.95 billion.

GameStop Corp. Price, Consensus and EPS Surprise

Let’s delve deeper and find out the factors impacting the results.

Factors to Consider

GameStop’s Technology Brands has been witnessing soft sales since past few quarters due to store closures. Notably, the company is also grappling with softness in used games or pre-owned software due to the launch of fewer titles, decrease in physical software sales, muted demand on digital access to older titles and fewer promotions offered to customers. In fact, margins have been contracting for a while now and persistence of this is a concern.

Recently, the company reported holiday sales numbers for the nine-week period (ended Jan 5, 2019). Sales declined 19.3% and 16.4%, respectively at Technology Brands, and pre-owned and value video game products during the holiday period. All these concerns are likely to have a negative impact on the to-be-reported quarter.

Nevertheless, GameStop’s collectibles sales category has been profitable owing to continued expansion of licensed merchandise and unique product offerings. During the holiday season, sales of collectibles rose 3.7%.

Apart from this, the company is on track with its expansion plans and gradually evolving as a mixed retailer of physical and digital gaming as well as electronic products. The company’s venture into digital, iDevice and gaming tablet businesses is anticipated be accretive.

We note that management had earlier reiterated fiscal 2018 earnings guidance of $2.55-$2.75 per share. Also, the company had previously projected sales decline of 2-6%, with comps expected to remain flat. GameStop expects the Spring Mobile business, which it offloaded lately, to generate adjusted operating earnings of roughly $75-$85 million in fiscal 2018.

What Our Model Says

Our proven model does not conclusively show that GameStop is likely to beat earnings estimates in fourth-quarter fiscal 2018. This is because a stock needs to have — a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GameStop has a Zacks Rank #4 and an Earnings ESP of 0.00%, which make surprise prediction difficult.

Stocks With Favorable Combination

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post earnings beat.

Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) has an Earnings ESP of +1.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. (NYSE:PVH) has an Earnings ESP of +1.14% and a Zacks Rank #3.

Five Below, Inc. (NASDAQ:FIVE) has an Earnings ESP of +0.48% and a Zacks Rank #3.

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Ollie's Bargain Outlet Holdings, Inc. (OLLI): Free Stock Analysis Report

GameStop Corp. (GME): Free Stock Analysis Report

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PVH Corp. (PVH): Free Stock Analysis Report

Original post

Zacks Investment Research
GameStop's (GME) Q4 Earnings Likely To Fall: Here's Why
GameStop's (GME) Q4 Earnings Likely To Fall: Here's Why

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