The Bright Spot In GameStop: Collectibles

GameStop Corp. (NYSE: GME) reported soft fiscal fourth-quarter 2016 results and disappointing 2017 guidance. Collectibles continued to be a bright spot, generating 28 percent growth in Q4, Credit Suisse’s Seth Sigman said in a report. He maintains a Neutral rating on the company, while reducing the price target from $22 to $20.

GameStop’s Q4 results were impacted by trends in the core gaming category. Management guided to 2017 EPS guidance of $3.10–$3.40, missing Credit Suisse’s estimate of $3.66 and consensus expectations of $3.73.

Upside in 2017 would depend on core gaming, which in turn would depend on “the sustainability of the early Nintendo Switch momentum, sufficient software tie ratios, some ramp in other new consoles to offset the growing digital penetration, and in mobile on a successful iPhone launch and return to comps growth in Tech Brands,” Sigman mentioned.

Focus On Collectibles

GameStop’s 2017 guidance reflects 30–40 percent growth in collectibles, which is an acceleration versus recent trends. This is expected to be driven by additional square footage allocation in GameStop stores and new collectibles standalone stores.

Collectibles EBIT margin is projected at 10 percent. The guidance implies total EBIT decline of $37 million at the mid-point, including an increase of $30 million in tech brands and $17 million from collectibles, implying a decline of $84 million in core gaming EBIT, the analyst noted.

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Image Credit: Corey Coyle [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons