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Dividend Stock Advisor

GameStop Posts Mixed Quarterly Results

By David Peltier | 2017-03-24 10:49:44.0
Stocks in Focus: GME

GameStop (GME:NYSE) is trading 11% lower today and recently traded around $20.99, after management posted mixed quarterly results overnight. The retailer earned $2.38 a share in the fiscal fourth quarter of 2017 (ended January), which exceeded expectations. On the other hand, revenue dropped 13% year-over-year to $3.05 billion and fell short of the consensus analyst estimate.

Looking ahead to fiscal 2018, the company sees earnings of $3.10 to $3.40 a share, compared with the consensus analyst estimate of $3.70. Revenue is expected to be $8.44 billion to $8.78 billion, which ranges from a 2% decline to 2% growth over the previous year. Hardware sales are expected to be flat to up slightly, aided by new console releases, such as the Nintendo (NTDOY) Switch. On the other hand, game sales are expected to decline mid-single-digits.

Despite the lower profit outlook, Gamestop’s 7.2% dividend yield remains secure -- and should attract new investors in the near term. Management can cover the quarterly dividend of $0.38 a share 2x with the low end of annual earnings guidance. It’s also worth noting the retailer has $170.2 million remaining on its stock buyback program.

The company is under a short-sale restriction, which likely means that trading will remain volatile on the session. However, we believe that investors will eventually be rewarded by management’s strategy to continue returning excess capital.

Regards,

David S. Peltier

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