GameStop Corp. (NYSE: GME) shares plunged 12% afterhours Thursday after the Company slashed its full-year earnings forecast.
The gaming retailer slashed its full-year outlook, saying it now expects adjusted earnings per share between USD 2.55 and USD 2.75, well below GameStop’s previous guidance for adjusted earnings between USD 3.00 and USD 3.35 per share. Wall Street had projected full-year earnings of USD 3.04 per share.
Rob Lloyd, Chief Operating Officer and Chief Financial Officer, said the Company lowered its forecast because it now anticipates weaker fourth quarter results.
“While our Black Friday and Cyber Monday sales were strong, we anticipate that our fourth quarter sales will skew more towards hardware than initially planned which, along with underperformance of certain titles, weakness in pre-owned and recent sales promotions, will result in fourth quarter earnings that are below our previous expectations,” Lloyd said in a statement.
The reduced projections outweighed GameStop’s better-than-expected third-quarter results. The Company reported adjusted earnings of 67 cents per share on USD 2.08 Billion in sales. Analysts had projected adjusted earnings of 57 cents a share on revenue of USD 2.03 Billion
GameStop noted that some major recently released games have underperformed the Company’s expectations. In a conference call with analysts, GameStop executives mentioned “Call of Duty: Black Ops 4” from Activision Blizzard and “Fallout 76” from Bethesda Softworks as examples.
More console and PC games are sold as digital downloads with each passing year, eliminating the need into a store and buy a disk. In an earnings call earlier this month, Activision Chief Financial Officer Spencer Neumann said about 30% of new sales for last year’s “Call of Duty” release were as digital downloads and he now expects to see a shift of more than 5 percentage points with this year’s version, based on early sales data.
That bodes poorly for GameStop, which despite efforts to diversify its business, still depends primarily on selling physical games in actual stores. New video game software is the Company’s largest segment, typically making up about 30% of total revenue. Analysts expect GameStop’s new game software sales to fall 7% in the current fiscal year. They are down 40% from their peak in 2011.
Many of those disks also end up cycled back into the company’s used-game business—its largest source of profits. Not coincidentally, GameStop cited weakness in its used game business as another big reason that it cut its per-share earnings outlook for the current fiscal year by 17% at the midpoint.
GameStop’s shares—already down 18% for the year—were down another 10% before Friday’s open. To make matters worse, the retailer is in the awkward position of hunting for both a permanent Chief Executive Officer as well as a potential buyer. A deal struck last week to sell off its problematic Spring Mobile business should make both tasks a bit easier.