This morning GameStop announced that its holiday season was a success, with sales up 5.4 percent to $3 billion and comparable store sales up 3.4 percent. But that wasn't as much as analysts and industry-watchers were hoping to see, and the market is punishing the retailer's stock.
In response to the news, GameStop shares fell over 4.6 percent, trading at $20.67 as of press time. "We'll have to sort out the market reaction. I'm not sure what that means ... but in general we're hearing favorable things," GameStop CEO Paul Raines told Reuters.
Wedbush analyst Michael Pachter called the results, in line with some estimates and below others "slightly disappointing." Lazard Capital Markets' Colin Sebastian said he thought the lowered stock "reflects profit-taking following the 13 percent rise in the stock last month," and that the company's results were "solid."
However, like many analysts including Stern Agee, Sebastian was a bit concerned with the company's product mix -- GameStop's used business appears to be experiencing slower growth than they'd like to see. That segment saw 1.7 percent growth over the holidays, according to the company.
Raines said he expected a big boost from the launch of Nintendo's 3DS in the spring, and that Kinect sales should continue performing solidly. He also expects to see sales benefit from more marketing support from Sony for Move, alongside the launch of Tiger Woods PGA Tour 12.
GameStop expects to report earnings of about $1.53 to $1.59 a share in its upcoming fourth fiscal quarter, and didn't make any forecast adjustments.
I've always found it pretty crazy that constant profit isn't enough -- instead investors demand ever-increasing profits. In what reality is infinite growth possible? Every system has steady states where forces balance each other, it seems stupid to keep demanding perpetual growth when such a thing cannot possibly exist.
I think this fair. For show inflation x2 for profit and then go out and have a steak dinner. Wall Street and Investors have an insatiable greed that is disheartening. As a disclaimer, I am one of those investors but attempt to keep my greed in check. :-)
The crazy part is that sales actually did grow by 5.4%. On Wall Street it is not enough to grow. Instead you have to grow more than people think you will. Gamestop is doing well based on their sales. They are not doing well based on Wall Street expectations.
That's true I was just refuting the statement that constant profits is enough. Maybe the reason stocks went down is related to the general nervousness as the retail industry in total is starting to wane as digital and online take over? Of course, as long as the big retailers move away from physical stores to warehouses and online ordering this might not be such a problem for some companies, but there is definitely a big shake up coming and it's a risky time to have your money in retail.
That is because the price of the stock reflects future profits. Why would you buy a company based on what they did in the past? At stock price x you expect y amount of profit in the future, if you don't get y you obviously overvalued the stock when you bought it for x. You then sell it because it wasn't performing to your projections (or, what I am guessing for GameStop is they got enough gains that you want to cash out, which causes downward pressure on the price as well).
I don't think constant profit is enough if to buy-in you have to pay 8.5x what they made last year or what they expect to make in the current year. You need assurances that they are going to grow at a pace that will make your investment profitable too. When they fail to meet expectations there will be some people that will lose confidence and try to get out -- seems pretty normal to me.
In this case, I think they were expecting higher profits due to improved economic conditions compared to last year. But you always see a sell-off of a stock after a good quarterly report. Sometimes after earnings reports investors decide to get out while they have their profit. The stock steadily rose leading into the earnings announcement, investors made their money, and are now cashing in on their profit. The stock will rebound over the next few months as long-term investors buy in.
Investor's have to consider the opportunity cost of keeping GameStop stock, when they could have dumped it and invested it somewhere else for a higher margin return.
