GameStop (GME 21.20, -2.76) has plunged 11.5% in pre-market as cautious guidance masks earnings that were ahead of the company's warning from January 13.
The video game retailer reported fourth quarter earnings of $2.38 per share on a 13.6% year-over-year decline in revenue to $3.05 billion, which was just shy of estimates.
GameStop's struggles are not new, considering the stock has faced a steady downtrend since hitting a seven-year high near $57.75 in late 2013. Shares have been on the defensive in recent years, reflecting the company's struggle to adjust to changes in the delivery of digital content. Video game publishers have taken steps to eliminate the middle man, selling a large portion of their content online. In addition to cutting out the retailer, this allows the publisher to avoid costs associated with packaging and producing physical disks with content. Instead, many games are now delivered through the internet and installed on the end user's console and PC.
On February 28, Microsoft announced the launch of a service, which will allow users to play more than 100 Xbox One and Xbox 360 games. The number of offerings is expected to grow over time and the service will be accessed after paying a monthly subscription fee. GameStop shareholders took note of this development, sending the stock lower by 7.8% on the day of Microsoft's announcement.
Returning to fourth quarter results, total global sales were down 13.6% to $3.05 billion. Consolidated comparable store sales fell 16.3% with U.S. sales falling 20.8% and international sales dropping 4.6%. The company said that weak sales of certain top-tier titles and aggressive console promotions conducted by other retailers fueled the decline. New hardware sales fell 29.1% while new software sales dropped 19.3%.
GameStop is still in the business of selling used video games, which gives the company a slight edge over the digital-only approach to sales, considering games that are sold online and downloaded cannot be re-sold. However, sales of pre-owned games were also down, falling 6.7% year-over-year.
Digital receipts declined 7.7% to $373.40 million. Technology Brands sales grew 43.9% year-over-year to $256.00 million while Collectible sales grew 27.8% to $212.40 million.
Looking ahead, the company expects headwinds to persist. GameStop expects full-year earnings between $3.10 and $3.40 per share, which is shy of current market expectations. Revenue is expected between $8.44 billion and $8.78 billion, which encompasses current market estimates. The company will no longer provide guidance for quarterly earnings nor same store sales, hoping to minimize "investor distraction" as the company continues diversification efforts.