Gamestop Q1 Results – Shares Slump Despite Sales Growth

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May 27, 2017

Two months ago we covered the financial year report of GameStop (NYSE: GME 21.22 0.57%). The outcome of their figures were disappointing and resulted in a fairly sizable drop in share price. In an unusual twist, the company have announced a sales increase in the first quarter. However, this has been joined with a share price fall of $1.43, 6%, at time of writing.

GameStop have announced an increase in sales by 3.8% year on year, rising to $2.05 billion. This rise in sales has resulted in a 2.3% increase in same store sales. However, this is a consolidated figure, with US stores showing a decline of 2.4% with international stores increasing 17.1%.

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Despite the increase of sales, net income has declined year on year from $65.8m to $59m. This was as a result of increased costs, including $7.3m of charges as a result of store closures announced during the previous financial report.

Sales and the Switch: GameStop’s Saviour

The core driving feature of the quarter was hardware, showing an increase of 24.6%. Driven by pre-orders and sales of the Nintendo Switch. Countering this was a decline of software sales. New software saw a decline of 8.2%. Pre-owned sales also declined 6.2%, which was in line with expectations.

What happened to be the saving grace of GameStop is the diversification strategy the company is continuing with. Helping to negate the impact of falling software sales was an increase of 39.1% from collectibles and a 21.5% increase from technology. The company also saw an increase in sales from both games accessories and digital.

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Paul Raines, CEO of GameStop, stated “Our first quarter results reflect the power of our leadership position within the video game market and our ongoing diversification efforts”. Moving onto say “Throughout 2017, our focus will continue to be executing our diversification strategy, exercising cost discipline and increasing our share in the video game market.”

Growth from the above areas highlights exactly where GameStop can look to further solidify sales and their expansion. Much like what was covered in Nintendo’s (ERROR PARSING SYMBOL) Red Dead Redemption 2 and the possible reduced demand of the Nintendo Switch.