Industry Analyst: GameStop Q2 Performance ‘Nothing Short Of Stunning’

Wedbush Morgan’s analyst Michael Pachter calls GameStops’s reported Q2 record earnings “nothing short of stunning” after it’s recent struggle with larger general retailers for hardware sales.

Said Pachter, “In the past, the company has lost hardware market share once supply and demand for hardware released the prior year was in balance,” but instead, GameStop’s performance implies that it “captured something close to 40% of all hardware growth during the quarter, with a retail presence of only around 23% overall.”

“We are at a loss to explain this sudden surge in hardware sales,” said Pachter, “as it breaks the company’s pattern of losing hardware share to mass merchant competitors as each console cycle matures.”

Pachter theorizes the recent price drops of the next-gen consoles has brought hardcore gamers back to the store, contributing to GameStop’s success. He also notes that the chain has excelled in software sales figures for the quarter as well.

Concluding, Pachter adds, “We continue to see the UK as the most immediate opportunity for GameStop, and believe that Blockbuster’s recent sale of its 200-store Gamestation chain in the UK to rival Game Group PLC was (for a time) a lost opportunity.”

“The sale to Game Group had the potential to create a greater barrier to entry into the UK market, and we think that it had the potential to set GameStop’s growth plans back by at least two years in that territory,” but notes that Game’s monopoly investigation might open a door for GameStop.

“We note that GameStop has over $300 million of cash on its balance sheet,” he said, “and under $700 million of debt; although much of the cash will be committed to inventory build in front of the holidays, we expect GameStop to generate around $200 million of free cash by year-end, more than enough to pay for any stores that Game Group will be required to sell. We would view the acquisition of any of these stores quite positively, and believe that any such purchase would be immediately accretive.”

via Gamasutra