Green Light For GameStop – US-FOREX.US
It’s a tough business if customers aren’t buying what you’re selling. This summer videogame sales have fallen sharply from last year, defying the prerecession assumption that the industry is growing so fast that nothing can stop it. Investors will get a look at the fallout when GameStop reports earnings on Thursday morning. The retailer is a popular hangout for gamers looking for the latest Xbox title or hoping to swap a conquered game for another used one. Despite the downturn, analyst Arvind Bhatia of Sterne Agee thinks GameStop is a go for investors.Sales of games and gaming hardware fell sharply last month. Software was down 26% in July compared with the year-ago period, according to research firm NPD, well below what Bhatia and other analysts had expected. A weaker slate of games from the major publishers coupled with still-high prices for popular game consoles like the Microsoft
Xbox 360, the Sony
PlayStation 3 and the Nintendo
Wii likely played a role. But the economic downturn has taken a toll on what consumers buy and discretionary purchases are taking a backseat to groceries and rent.That has led Bhatia to reverse his predictions for the industry, guessing that total game sales will fall 3% this year instead of rise by the same amount. GameStop
will feel the pinch. He thinks same-store sales, a common way to measure retail performance, fell 16% last quarter from the same period in 2008. Competition for used games, a very profitable business, may lower GameStop’s healthy margins. Overall, Bhatia thinks the firm will report earnings per share of 23 cents, well below the 28 to 33 cents GameStop itself had predicted and the Wall Street consensus of 30 cents.So why is the stock a buy? Industry sales data are no secret, and the sleepy summer is priced into GameStop’s shares, says Bhatia. Many analysts expect console makers to lower their prices this fall , and that should boost game sales, too. A strong lineup of eagerly awaited blockbusters is due out in the coming months, luring gamers into stores. Finally, GameStop’s second-hand business is a strong one and the firm dominates the market. Bhatia thinks the shares are worth 31, a 25% premium to their closing price on Tuesday.
