Outlook: GameStop to Report Holiday Comps Above Guidance

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GameStop will report holiday sales (9 weeks ending January 4) before market open on Tuesday, January 4. It will not host a conference call. We expect GameStop (NYSE:GME) to report holiday comps well above the high end of its Q4:13 comps guidance range of up 2-9 percent and the level we have modeled, up 10 percent.

We believe GameStop competed favorably for up to 50 percent domestic market share of the most high-profile software releases and two new next-gen consoles. Sony announced worldwide PS4 sell-through of over 4 .2 million consoles as of December 28, with over 9.7 million PS4 games sold (including digital). Microsoft announced Xbox One worldwide sell-through of over 3 million consoles before the end of 2013. We believe GameStop sold at least 1.8 million of the over 7.2 million next-gen consoles, and will sell another 300,000 before quarter end. We expect management to mention that Q4 EPS is trending towards the high-end of the guidance range of $1.97-2.14.

In our view, despite what is expected to be a strong holiday comps figure, a bullish raise to EPS guidance appears unlikely given mix shift, with more spending than usual on lower-margin hardware coupled with used uncertainty. In addition, management typically takes a conservative approach towards guidance, and the outlook for January remains uncertain. We believe GameStop has little risk of missing Q4 EPS guidance, however, due in part to a recently announced new $500 million share repurchase authorization. It is also worth noting that the company has now met or exceeded consensus EPS every quarter since Q2:10 (reported August 19, 2010).

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