Factors Setting the Tone for GameStop (GME) in Q3 Earnings


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GameStop Corp. GME is slated to report third-quarter fiscal 2017 results on Nov 21, after the closing bell. In the preceding quarter, the company’s earnings missed the Zacks Consensus Estimate by 6.3%.

Notably, the company surpassed the Zacks Consensus Estimate with a positive earnings surprise of 7.6% in the trailing four quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is whether GameStop will be able to post positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 43 cents, down 12.2% year over year. We note that the Zacks Consensus Estimate has been stable in the past 30 days. Analysts polled by Zacks expect revenues of $1,958 million, compared with $1,959 million reported in the prior-year quarter.

Factors at Play

GameStop, which has failed to post earnings growth in the past few quarters, might struggle in the third quarter too. In the second and first quarters of fiscal 2017, earnings had declined 44.4% and 4.5%, respectively. Stiff competition, aggressive promotional strategies and waning store traffic are the headwinds with which the retail sector is grappling, and the company is not immune to it. Further, its basic concern is the weakness prevailing in new software sales, which is heightening apprehensions about the impact of digital downloads on the same.

Comparable store sales (comps), which witnessed a gain of 1.9% year over year might witness a decline the quarter to be reported. Analysts surveyed by Zacks expect comps to fall by 2.3%.

GameStop’s foray in the collectibles and licensed merchandising category, and Technology Brands has been profitable. During the fiscal second quarter, the collectibles business sales surged 36.1% to $122.5 million buoyed by robust sales of Pokémon and Marvel-related products. GameStop expects to enhance collectibles business to approximately $650-$700 million during fiscal 2017 and anticipates becoming a $1 billion business by the end of fiscal 2019. In the third quarter, Collectibles sales are forecasted to increase by 30-40%. Further, management anticipates sturdy performance of Technology Brands and Collectibles to continue in fiscal 2017, and added that new hardware innovation in the video game category also looks promising.

Gamestop Corporation Price, Consensus and EPS Surprise

Gamestop Corporation Price, Consensus and EPS Surprise | Gamestop Corporation Quote

What Does the Zacks Model Says?

Our proven model does not conclusively show that GameStop is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter .

GameStop carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -5.81%, consequently making surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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

Burlington Stores, Inc. BURL has an Earnings ESP of +0.07% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here .

Guess’, Inc. GES has an Earnings ESP of +5.89% and a Zacks Rank #3.

Signet Jewelers Limited SIG has an Earnings ESP of +27.52% and a Zacks Rank #3.

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Gamestop Corporation (GME): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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