The U.S. video-game retailer, GameStop (GME, Financial), announced its holiday season numbers yesterday which pleased the investors and also the fourth quarter earnings guidance remains optimistic from the company’s end. The holiday season numbers were actually a mixed set of positives and negatives, but the positives seem to have overridden the negative points leading to the stock surging 10.5% and recording the highest single-day gain over the past six years. Let’s dive in to find out what got revealed on the holiday season sales and the Q4 guidance that send the stock to a new peak altogether.
The positives were listed more than the flaws
The company reported a surge in comp sales up by 4.4% in December after the 12% dip in November last year. Also the company modified its comp sales guidance from the earlier range of negative 5% to positive 2% for the final quarter and this is mainly due to strong comp sales witnessed in the major holiday season.
For the fiscal year, comps are now expected to fall in the range of 3-4% as against the 2-5% decline projected earlier during last November when the third quarter results got revealed. However, the sales in the holiday season were affected negatively by the stronger U.S. dollar and even though comp sales remained better than expected, it was down 6.7%. Even on a constant currency basis, the sales were down 4%.
But the new software line of business did cast a rosy picture with new software sales growing 8.9% on a constant currency basis. Such higher software sales was majorly driven by a 94.4% rise in demand for next generation titles for both Microsoft’s (MSFT, Financial) Xbox One and Sony’s (SNE, Financial) PlayStation 4. On the contrary, the hardware sales tumbled 29.8% due to currency rate fluctuations and as the new console launches overlapped those launched last year. However, the “next generation hardware” sales remained remarkably high soaring 31.3% year-over-year which in turn implied the huge potential in the hardware segment.
Sales in mobile and consumer electronics segment rose 28% led by 75.8% increase in the technology brands value. Digital receipts also increased 42.8% as console sales rose nearly 50% year over year.
Given the positives overriding the negatives in the holiday season, CEO Paul Raines while expressing his expectations from the near future stated – “During the holiday period, consumer demand for video games was strong, resulting in new software sales growth. We expect that trend to continue into the first quarter. Overall, each of our business units performed well giving us positive momentum as we look toward 2015.”
Management remains upbeat on the fourth quarter
As the overall holiday performance was up to the mark, the management reiterated its fourth quarter guidance and has maintained the earnings per share guidance to be in the range of $2.08-2.24 per share. For the entire fiscal year, the earnings are expected to remain in the range of $3.40-3.55 per share.
Final word
As GameStop enters into 2015, its prospects look pretty good enough with software sales picking up momentum and hardware sales also expected to grow at a rapid pace this year. Let’s wait for the fourth quarter earnings to be declared in March that would give better insight as to how much the holiday season sales actually contributed to the quarter. As of now, the stock looks highly lucrative and investors holding the stock seem tremendously happy with their holdings.
