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GameStop CEO: Nintendo Switch “A Game Changer”; Pokémon Sun & Moon Best Selling Games Of 2016

Today GameStop reported its third quarter financial results. Overall the company is trending slightly down when compared to last year, especially in the video game sales department. This is mainly due to the lower than expected sales of games released in October. Apparently Titanfall 2 fell short of expectations and early word is that Call of Duty: Infinite Warfare isn’t trending as well as prior releases.

Not represented in the numbers are the sales of Pokémon Sun and Moon, since they just released a few days ago. According to GameStop executives, Pokémon Sun and Moon became the best-performing games of the year. In fact, pre-orders of the game were higher than any other titles in the past five years for the company.

 

feat-pokemon-sun-moon

 

Looking forward, GameStop CEO Paul Raines told investors on a call today that he thinks Nintendo could have a winner on its hands when the Nintendo Switch launches this March, going on to say:

 

“The Nintendo Switch, which I played at Nintendo a few weeks ago–we believe could be another game-changer that will expand the audience for gaming.”

 

Interest among GameStop customers is also pretty high. In fact, 27 percent of Power Up Rewards customers who are aware of the Nintendo Switch plan to buy one. This is in line with previous metrics surrounding the Xbox One launch. The percentage could go even higher after Nintendo unveils more details about the Switch on January 12, including release date, pricing, and launch lineup. Now, if we could only pre-order a Switch that would be great!

 

switch-place-in-dock

 

Interestingly enough, GameStop still shows The Legend of Zelda: Breath of the Wild as a potential first quarter release. The latest rumors show the game most likely missing the Nintendo Switch launch and coming out later in the year. Of course, we won’t know anything for certain until Nintendo makes an announcement one way or the other.

 

GameStop Corp. (NYSE: GME), a global family of specialty retail brands that makes the most popular technologies affordable and simple, today reported sales and earnings for the third quarter ended October 29, 2016.

The following table summarizes the third quarter results for fiscal 2016 and 2015 ($ in millions, except per share amounts):

Oct. 29, 2016Oct. 31, 2015Change
Net Sales$1,959.2$2,016.3-2.8%
Same Store Sales*-6.5%-1.1%
GAAP Net Income$50.8$55.9-9.1%
GAAP Diluted EPS$0.49$0.53-7.5%
Technology Brands Operating Earnings$23.5$6.5+261.5%
*excludes Technology Brands stores

Paul Raines, chief executive officer, stated, “Our third quarter results were in line with the revised guidance we issued on November 2. While the video game business has underperformed recently, we are focused on maintaining our leading market position, especially during the holiday season, as well as driving diversification through the growth of Technology Brands, Digital and Collectibles. In aggregate, despite the softness in video games, I’m proud that our team was able to increase total operating earnings by nine percent year-over-year. As we look forward, we believe that we are well positioned to continue to drive strong free cash flow and return value to shareholders through a combination of share repurchases and dividends.”

Third Quarter Results

Total global sales decreased 2.8% to $1.96 billion, while consolidated comparable store sales declined 6.5%. As previously reported, the video game category was impacted by weaker than expected demand during the last few weeks of October. As a result, new hardware sales declined 20.6% and new software sales declined by 8.6%. Pre-owned sales slightly outperformed the new side of the video game business, declining 6.4% compared to the third quarter of 2015.

Non-GAAP digital receipts rose 13.2%, to $258.9 million and GAAP digital sales increased 11.8%. The growth was driven by sales of DLC, console digital currency and mobile. Mobile was led by Kongregate’s launch of Animation Throwdown: The Quest for Cards, a mobile game featuring many of Fox Entertainment’s most popular animated shows, such as Family Guy, King of the Hill and American Dad.

Technology Brands sales increased 54.4% to $216.3 million. Technology Brands operating earnings were $23.5 million, a 262% increase compared to $6.5 million in the prior year quarter. Overall, Technology Brands remains on track to deliver between $85 million and $100 million of operating earnings in fiscal 2016 and contributed 23.8% of the company’s third quarter operating earnings.

Collectibles sales rose 37.3% to $109.4 million, driven by sales of various Pokémon and Five Nights at Freddy’s products as well as exclusive New York comic con pop vinyl products. The company added twenty-two Collectibles stores during the quarter, bringing the total global portfolio to 69 stores, including 15 ThinkGeek stores in the U.S.

GameStop’s net earnings for the third quarter were $50.8 million, or $0.49 per diluted share, compared to net earnings of $55.9 million, or $0.53 per diluted share in the prior year quarter.

Capital Allocation Update

On November 21, 2016, GameStop’s board of directors declared a quarterly cash dividend of $0.37 per common share payable on December 13, 2016 to shareholders of record as of the close of business on December 1, 2016.

During the third quarter, the company repurchased 1.35 million shares at an average price of $26.63, or $36.0 million of stock. As of October 29, there was $209.3 million remaining on the existing repurchase authorization.

Earnings Outlook

For the fourth quarter of fiscal 2016, GameStop expects comparable store sales to range from -12.0% to -7.0%. Diluted earnings per share are expected to range from $2.23 to $2.38. For fiscal 2016, the company is reiterating the full year diluted earnings per share guidance of $3.65 to $3.80 and comparable store sales range of -9.5% to -6.5% it provided on November 2, 2016. Earnings per share guidance assumes weighted average shares outstanding of 103,000,000 for the fourth quarter and 104,000,000 for the full year.

 

[Sources: GameSpot & GameStop]

 

Craig Majaski

Craig has been covering the video game industry since 1995. His work has been published across a wide spectrum of media sites. He's currently the Editor-In-Chief of Nintendo Times and contributes to Gaming Age.

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