GameStop Corp, the world's largest retailer of video games and gaming consoles, reported better-than-expected quarterly results on Thursday, but left its full-year earnings forecast unchanged, sending shares down 6 percent in extended trading. The Grapevine, Texas-based company benefited from robust demand for the newly launched Nintendo Switch console in the first quarter ended April 29, helping offset a decline in sales of video games.
A lack of insight into shipments of Nintendo's latest gaming device for the rest of the year held GameStop back from raising its full-year forecast, Chief Financial Officer Robert Lloyd said in an interview. "Without visibility into the product they can deliver to us ... it is tougher for us to raise our estimates," Lloyd said.
Nintendo expects the Switch to more than double its annual operating profit. "We haven't seen supply (of the Switch) even come close to catching demand," a GameStop executive said on a post-earnings call. A delay in the launch of Take-Two Interactive's highly awaited title, "Red Dead Redemption: 2," also contributed to GameStop keeping its full-year earnings forecast unchanged at $3.10-$3.40 per share, Lloyd said.
Sales at GameStop's mainstay video game retail business continued to fall, with new video game sales declining 8.2 percent to $520.5 million in the first quarter. Demand for physical copies of video games has weakened in recent years as players increasingly buy games online by downloading them to their devices, rather than visit a store to buy game discs.
The shift to downloads in recent years has helped video game publishers such as Electronic Arts, Activision-Blizzard, and Take-Two boost profit margins, but has dented retail sales of video games. To counter this shift, GameStop has widened its portfolio by offering mobile phones, tablets and other devices in some of its more than 7,500 stores.
Sales at those stores jumped 21.5 percent in the latest quarter but only made up 10 percent of total revenue. But GameStop posted a surprise 2.3 percent rise in sales at established stores, compared with analysts' average expectation of a 3.6 percent decline, according to research firm Consensus Metrix.
Net sales climbed 3.8 percent to $2.05 billion, beating analysts' expectations of $1.94 billion, according to Thomson Reuters I/B/E/S. Net income fell 10.3 percent to $59 million, or 58 cents per share, as expenses rose. Excluding items, GameStop earned 63 cents per share, topping expectations of 51 cents. Through Thursday, GameStop's shares had slipped 6.5 percent this year.