GameStop reports strong third quarter but stock sinks on outlook

Shares of Grapevine-based GameStop plunged nearly 7 percent on Thursday after the video game retailer reported strong third-quarter earnings but projected a softer-than-expected fourth quarter.

Net earnings for the quarter ended Nov. 2 were $68.6 million, up 45 percent from adjusted net income of $47.2 million a year ago. Sales totaled $2.11 billion compared to $1.77 billion in the prior year, and comparable store sales — at stores open at least a year, an industry benchmark — rose 20.5 percent.

But looking ahead, GameStop said it expects earnings per share in the critical fourth quarter in a range of $1.97 to $2.14 a share, below the analyst consensus of $2.16. GameStop shares (ticker: GME), which have more than doubled this year, closed down $3.64 a share to $48.80 on the New York Stock Exchange.

“Our strong third quarter sales results give us great momentum as we enter the new console cycle,” said Paul Raines, chief executive officer, referring to this month’s release of the PlayStation 4 and Xbox One systems.

“Consumer appetite for the new consoles is very strong judging by last week’s successful PS4 launch and the excitement for tonight’s Xbox One launch event,” Raines said. “Globally, we are executing our unique playbook to maximize our position of strength.”

During a conference call with analysts, executives said the company’s initial allocation of PlayStation 4 consoles sold out and that 2.3 million customers are waiting for new players from Sony and Microsoft.

Initial sales of the Sony console exceeded its predecessor, PlayStation 3, by more than 80 percent in the first few days, the executives said. They also anticipate a large waiting list for Microsoft’s Xbox One, suggesting a prolonged industry sales slump is ending.

“We still have over 2.3 million customers on the First to Know List, which indicates continued demand for months to come,” GameStop President Tony Bartel said on the call.

Microsoft’s $499 Xbox One goes on sale Friday in 13 countries and is expected to be in high demand after a seven-year drought on new home consoles from the two companies. GameStop was staging midnight openings for the launch.

The retailer, which accounts for more than half of Sony and Microsoft’s video-game software sales, will benefit from the console transition based on its ability to lure gamers who trade in older titles and hardware for discounts on new gear, said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco. He recommends buying the stock.

This article includes material from Bloomberg News.