GameStop Corporation (GME), the video game and entertainment software retailer, recently posted fourth-quarter 2010 results. The quarterly earnings of $1.56 a share came in line with the Zacks Consensus Estimate and rose 20.9% from $1.29 earned in the prior-year quarter driven by digital offerings, power up rewards loyalty program and e-commerce inventiveness.  

The Zacks Consensus Estimate was stable prior to the earnings announcement with no upward or downward revisions in the analysts’ estimates in the past 30 days.

Behind the Headline

Texas-based GameStop posted total revenue of $3,692.8 million that fell short of the Zacks Consensus Revenue Estimate of $3,710.0 million but climbed 4.8% from the year-ago quarter. The retailer hinted that comparable-store sales inched up 2.6% during the fourth quarter.

By sales mix, new video game hardware sales went up 5.9% to $781.4 million, whereas sales of new video game software inched up 2.1% to $1,593.4 million. Sales of used video games registered a growth of 3.7% to $805.6 million.

Despite a 5.3% increase in cost of sales, GameStop’s gross profit for the quarter expanded 3.4% to $903.7 million, whereas gross margin reduced 30 basis points to 24.5%. Operating income rose 8.1% to $375.7 million, whereas operating margin increased 30 basis points to 10.2%.

Other Details

GameStop ended the quarter with cash and cash equivalents of $710.8 million and net receivables of $65.5 million. During the quarter, the company bought back 5.4 million shares at $20.77 each under its new $500 million share repurchase program.

The company also notified that it expects to open approximately 200 new stores and will also close 200 stores with expiring leases.

Management Guided

Moving forward, for the first quarter of 2011, GameStop anticipates net sales to increase in the range of 6.0% to 8.0% with an increase of 4.0% to 6.0% in comparable-store sales. GameStop expects earnings in the range of 53 cents to 55 cents per share.

For fiscal year 2011, the company anticipates net sales to increase in the range of 6.0% to 8.0% with an increase of 3.5% – 5.5% in comparable-store sales. GameStop expects earnings in the range of $2.82 to $2.92 per share.

GameStop also notified that it expects to incur $170.0 million in capital expenditure, which includes $100.0 million in technology systems, digital initiatives and sustaining the loyalty program and $70.0 million for store modernization and openings.

Currently, we have a Neutral rating on GameStop. Moreover, GameStop, which competes with Best Buy Co. Inc. (BBY), holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation, also correlates with our long-term view.

 
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