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GameStop Q3 beats Street; slashes 2018 earnings outlook

GameStop is not all that optimistic about the holiday quarter.

The nation’s largest videogame retailer slashed its full-year earnings outlook even as it reported better-than-expected third-quarter results and strong Black Friday and Cyber Monday sales.

“We anticipate that our fourth quarter sales will skew more towards hardware than initially planned which, along with underperformance of certain titles, weakness in pre-owned and recent sales promotions, will result in fourth quarter earnings that are below our previous expectations,” said Rob Lloyd, COO and CFO.

The company said it expects adjusted earnings of $2.55 to $2.75 a share for fiscal 2018, which was well below its previous guidance for adjusted 2018 earnings between $3 a share and $3.35 a share. Analysts had projected adjusted earnings of $3.04 a share.

Lloyd reiterated past statements by GameStop and said the company was “evaluating all aspects of our business,” including  store and omnichannel experiences,  cost structure, strategic and economic partnerships with publishing and platform partners, and relationships with customers and the services it offers them “to enhance our business and drive growth and profitability over the long term.” In November, the retailer entered into an agreement to sell its Spring Mobile business to Prime Communications L.P. for $700 million.

GameStop reported a net loss of $488.6 million, or $4.78 a share, for the quarter ended Nov.3, compared with net income of $59.4 million, or 59 cents a share, in the year-ago period. Adjusted earnings were 67 cents a share. Analysts had estimated earnings of 57 cents a share.

Revenue rose 4.8% to $2.08 billion from $1.99 billion, better than the $2.03 billion analysts had estimated. Same-store sales rose 2.1%.

“We experienced solid growth in the third quarter, including double-digit growth across software, hardware, accessories and collectibles, underscoring GameStop’s leadership position in video games and our unique ability to satisfy all of our customers’ entertainment needs,” said Lloyd.

Lloyd said the company was especially pleased with its performance in October, a month where The NPD Group disclosed that the U.S. physical video game industry grew by 46%, “while our U.S. physical video game revenue outpaced the industry and increased 63% resulting in market share gains.”
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