Nintendo Switch drives GameStop’s Q4 sales, provides weaker outlook for 2018

Video game industry is at its best with $108.9 billion in global revenue for 2017, representing a 8% growth compared to 2016. According to Newzoo, there are currently more than 2.2 billion active gamers across the globe.

In spite of this massive growth in gaming industry, the video game retailer GameStop (GME) has been struggling over the past few years as video game purchases from retail stores continue to decline due to the strong growth in the e-commerce and competition from online giants like Amazon (AMZN).

The Grapvine, Texas-based company, which had a total of 7,535 stores at the end of its fiscal 2016, anticipated to open about 100 new stores as well as close about 130 Video Game Brands stores worldwide and 55 Technology Brands stores in fiscal 2017.

At the end of FY17, GameStop had around 7,200 stores, down 4.4% compared to a year ago.

GameStop reported a surge in its top line results, while bottom line results disappointed with the company reporting a loss for the quarter. The 15% sales push to $3.50 billion was helped by new hardware sales, which jumped 44.8%, driven by demand for Nintendo Switch, along with a 12.4% software sales surge. GameStop swung to net loss, hurt by the asset impairment charges of $406 million or $3.06 per share, mainly related to the Technology Brands business. The company reported a loss of $105.9 million or $1.04 per share compared to a profit of $208.7 million or $2.04 per share a year ago. Adjusted earnings also declined 15.1% year-over-year to $2.02 per share.

Other Highlights

The company reported global same store sales increase of 12.2% for the fourth quarter, with hardware sales spiking 44.8% and collectibles sales jumping 22.8% for the quarter. Digital sales and adjusted digital receipts also surged 41.0% and 16.1%, respectively.

Outlook

For 2018, GameStop is giving a back half weighted outlook at the back of the overlap of the Nintendo Switch launch in the first half of 2018. The company estimates total sales to be down 2% to 6%, while comparable store sales is expected to be flat to down 5% (excluding Tech Brands stores). Adjusted EPS is expected in the range of $3.00 to $3.35.