Analysts mixed on GameStop after Q1 revenue misses estimates, interim CEO named
Shares of GameStop (GME) were in focus after the company reporting quarterly results and reaffirmed its guidance for fiscal 2018. Analysts' commentary was mixed following the earnings report. EARNINGS: After the market close yesterday, GameStop reported first quarter earnings per share of 38c on revenue of $1.93B, compared to analysts' estimates of 37c and $1.96B, respectively. Comparable store sales fell 5.3% in the quarter, with new hardware sales slipping 7.9% and new software sales falling 10.3%. The retailer noted that each of these categories was impacted by the "highly successful" launch of the Nintendo Switch (NTDOY) as well as a particularly strong lineup of gaming titles in the same quarter last year. GUIDANCE: GameStop backed its guidance for fiscal 2018, noting that it expects earnings to be "substantially" back half weighted for the fiscal year given the overlap of the Nintendo Switch launch last year and expected strength of the title lineup in the second half of the year. INTERIM CEO: Additionally, GameStop announced that board member Shane Kim, a former Microsoft (MSFT) executive, will serve as interim chief executive officer until a permanent one is named. In addition, Rob Lloyd was promoted to chief operating officer and chief financial officer. Dan DeMatteo will remain as the company's executive chairman of the board. WHAT'S NOTABLE: The quarterly report comes ahead of the Electronic Entertainment Expo, or E3, a major gaming convention which is scheduled to take place from June 12 to June 14. Though some game makers, including Bethesda, Electronic Arts (EA), Nintendo, and Activision Blizzard (ATVI), have already unveiled major titles set to launch in the back half of the year, video game publishers and developers typically announce new upcoming titles during E3. BENCHMARK, BAIRD CUT PT: Following the report, Benchmark analyst Mike Hickey cut his price target on GameStop to $10 from $12 and kept a Sell rating on the stock, saying he has "no confidence" in the company's management. Hickey said that he views execution risk as elevated, with management back end loading fiscal year expectations, while Epic Games' "Fortnite," one of the most popular games in the world, is Free to Play. Epic Games is 40% owned by Tencent (TCEHY) and is part of Disney's (DIS) Accelerator Program. In addition, Baird analyst Colin Sebastian lowered his price target on the stock to $14 from $18 but maintained an Outperform rating, saying that results were in-line but highlighted by continued strength in collectibles partially offset by anticipated weakness in new hardware, new software, pre-owned declines and ongoing Tech Brands weakness. The analyst also noted that Q1 had a "light" game release slate. WEDBUSH BACKS OUTPERFORM: Meanwhile, Wedbush analyst Michael Pachter backed an Outperform rating and $19 price target on GameStop, saying the retailer delivered Q1 results that "modestly" exceeded his expectations. The analyst expects the shares to trade at a compressed EPS multiple until the company can slow the rate of decline in its core video game business. Pachter noted that GameStop "clearly" deserves to trade at a compressed multiple due to "modestly declining" earnings, but that the Outperform rating reflects the large upside appreciation potential. PRICE ACTION: At midday, GameStop shares were marginally higher at $13.20.