GameStop (GME) is set to report Q4 results after the bell (5:00pm ET). Cap IQ Consensus estimates Q4 EPS of $2.29 (vs. $2.40 in 4Q16), revs of $3.06 bln (-12.6% y/y), with comps declining 16.9%.  

Guidance

  • The Street expects Q1 FY17 EPS of $0.64 (vs. $0.66 in 1Q16) on revenues of $1.9 bln (roughly flat y/y) with comps down nearly 5%.
  • The Street expects FY17 EPS of $3.73 on revenues of $8.6 bln with comps down nearly 3%. 

Bears will argue that total revenues from strategic initiatives only accounted for ~18.4% of Q3 sales. What is especially concerning for GameStop, is consumers are purchasing more and more games and gaming content digitally directly from their gaming consoles.

n Q3 Electronic Arts (EA) reported that digital sales represented 60% of their total net sales on a trailing 12-month basis, up 18% y/y.

In Q3 Take-Two (TTWO) reported that digitally-delivered net revenues grew 64% y/y, and Activision (ATVI) reported that Q4 GAAP net revenues from digital channels increased 101% y/y. 

This company feels like Blockbuster 2.0.

Highlights from Last Quarter

  • Consolidated comparable store sales declined -6.5% in OctQ, in-line with prior guidance of down -7% to -6%. As previously reported, the video game category was impacted by weaker than expected demand during the last few weeks of October. 

    • New video game hardware sales declined 20.6% to $284.4 mln. 
    • New video game software sales declined 8.6% to $616.6 mln. 
    • Pre-owned and value video game products sales declined 6.4% to $470 mln. 
    • Video game accessory sales increased 13% to $156 mln. 
    • GAAP digital sales increased 11.8% to $44.7 mln. 
    • Technology Brands sales increased 54.4% to $216.3 mln. 
    • Collectibles sales increased 37.3% to $109.4 mln. 

Options Activity

Based on GME options, the current implied volatility stands at ~ 42%, which is less than 17% higher than historical volatility (over the past 30 days). The options market is currently pricing in a move of ~7% in either direction by weekly expiration (Friday).

Techs

Technically, GME has been in a range YTD between a low of $22 and high of $26. 

The 200-day simple moving averages are above along multi-month resistance in the $25/26 area. If Sellers take control, expect the January bearish gap low near $22 to be challenged and broken and a subsequent retest of 20 (not overnight).

TRADE: Bought APR 21.5P