August 24, 2017 / 8:50 PM / a month ago

GameStop reports lower-than-expected quarterly profit

FILE PHOTO - A GameStop Inc. store is shown in Encinitas, California, U.S., May 24, 2017. REUTERS/Mike Blake

(Reuters) - GameStop Corp, the world’s largest video game and gaming console retailer, reported a quarterly profit that narrowly missed estimates as growth in the company’s technology brands business failed to live up to market expectations.

Shares of the company fell 7.6 percent to $20.13 (15.73 pounds)after the bell on Thursday.

The company has been beefing up its technology brands unit, which includes AT&T and Apple authorized retail stores, to offset declines in video game sales at its outlets.

Although sales in the unit rose 7 percent to $188.3 million, they were still short of analysts’ estimates of $207.6 million, according to financial data and analytics firm FactSet. The business accounts for about 11.2 percent of its total revenue.

“The (No.1) takeaway is that the Tech Brands business is a disaster, with sales per store down over $30,000 for the quarter and with very low profitability,” Wedbush Securities analyst Michael Pachter said.

However, Chief Financial Officer Robert Lloyd told Reuters that the much-awaited launch of new iPhones and the deal between AT&T Inc and Time Warner Inc would help the business in the near-term.

“The deal between AT&T and Time Warner will give us new products and services to offer in our stores,” Lloyd said.

GameStop operates 1,403 AT&T branded wireless retail stores under Spring Mobile and 50 Simply Mac branded stores, which sell Apple products.

Sales in GameStop’s pre-owned video games business, accounting for about a third of its overall sales, fell 7.5 percent to $501.8 million - their biggest drop in six quarters.

Sales of new video games at its stores also slipped 3.4 percent to $369.3 million in the second quarter ended July 29.

However, the continuing popularity of Nintendo Switch gaming console helped shore up sales in its new hardware business, which reported a 14.8 percent jump in revenue to $248.4 million.

The company’s net income fell to $22.2 million, or 22 cents per share, in the second quarter ended July 29 from $27.9 million, or 27 cents per share, a year earlier.

Excluding items, GameStop earned 15 cents per share.

Net sales rose 3.4 percent to $1.69 billion.

Analysts on average had expected the company to report a profit of 16 cents per share and revenue of $1.64 billion, according to Thomson Reuters I/B/E/S.

Reporting by Arjun Panchadar and Laharee Chatterjee in Bengaluru; Editing by Anil D'Silva

Our Standards:The Thomson Reuters Trust Principles.
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