continues to be a thorn in the side of parents across the country, struggling
video game retailer GameStop (GME 16.76, +0.99, +6.28%) has had a completely different take on the
game's incredible run. First launched in July 2017, the game has exploded in
popularity with well over 125 mln players around the world.
Fortnite is downloaded to a gaming console (XBox, PlayStation) or PC, so, video game retailers like GME do not actually sell the game. Game developers launching directly through digital channels has been a substantial, ongoing challenge for GME. But, the success and ultra-popularity of Fortnite has had a direct positive impact on GME's financial results. This is due to Fortnite causing an increased demand for headsets.
GME also sells gift cards of in-game currency for a variety of games. This currency buys digital downloads of new skills, weapons, tools, medicines, attire, (or dances, in the case of Fortnite) etc.
This is where GME's holiday and comparable sales report comes
in to play. Before the open today, GME reported that holiday sales declined by
5%, but, comparable store sales were up 1.5%, including a 3.6% bump in the U.S.
Furthermore, the company reaffirmed its FY18 EPS guidance of $2.55-$2.75, which
includes the sale of its Spring Mobile business.
The company reported that hardware sales fell by 6.1%, due to the successful launch of XBox One X in the year ago period. Sales of new video games were also weak, down 8.3%, while pre-owned video game sales sank by 16.4%.
The company experienced a sharp jump in video game accessory sales, namely, headsets. Specifically, accessory sales were up 29%, which follows Q1's robust 33% growth for accessories. At the same time, digital receipts climbed by 17% to $352.9 mln (13% of revenue), driven by strength in sales of digital currency.
In other words, the ongoing Fortnite craze has provided the antidote to sagging video game sales and some softness in margins, as lower margin hardware sales have become a larger piece of the pie. GME also just completed the sale of Spring Mobile, which owned and operated nearly 1,300 AT&T (T) wireless stores. Prime Communications paid $700 mln for the business and GME could use those proceeds to invest more in its digital business, while also paying down some of its debt.
On that note, there have been plenty of rumors that private equity will soon step in and buy the company. In fact, GME is still evaluating strategic initiatives in order to unlock shareholder value, indicating that it could be open to a sale. The sale of its Spring Mobile business might make GME an even more attractive acquisition target, making it a precursor to an eventual sale. That remains speculation at this point of course. For now it is clear that GameStop's business has picked up a bit, thanks to the resilient growth of Fortnite.