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GameStop to Exit Spain, Deploy Resources in Gainful Areas

Zacks Equity Research

After a careful evaluation of its operations in Spain, GameStop Corporation (GME) decided to exit the market. This video game retailer informed that it will divest some of its outlets to GAME Digital Plc and close the remaining by the year end. GAME Digital has a strong foothold in Spain and has retail operations in the U.K. as well.

The deal, terms of which were not disclosed, is expected to be concluded in October upon approval from Spanish Competition Authority. Grapevine, TX based GameStop said that it will deploy resources in other profitable markets, where it holds significant share and hinted that it will also enhance its presence in other parts of Europe.

GameStop is well poised to take advantage of the growing market for video game products and PC entertainment software. The company’s strategy is to grow through store expansion in favorable localities, by providing the largest title collection of video games and leveraging its first-to-market distribution network to offer the latest hardware and software releases. The company provides a greater selection of used video game products for both current and previous generation platforms.

The company continues to branch out and has evolved as a mixed retailer of physical and digital gaming as well as electronic products. The company’s ventures in digital, iDevice and gaming tablet businesses would be accretive to its results. The company’s buy-sell-trade model for selling new games and buying back used games and the PowerUp Rewards program makes it a popular shopping destination.

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These have helped GameStop, which competes with Best Buy Co., Inc. (BBY) to report a better-than-expected bottom line for the second consecutive quarter. After a positive earnings surprise of 3.5% in the first quarter of fiscal 2014, the company again beat the Zacks Consensus Estimate by 15.8%.

The company posted earnings of 22 cents a share in the second quarter that came ahead of the Zacks Consensus Estimate of 19 cents and rose substantially from 9 cents delivered in the year-ago quarter. The outperformance came on the back of new game releases and robust hardware sales.

Total net sales increased 25.1% year over year to $1,731.4 million, and handily surpassed the Zacks Consensus Estimate of $1,656 million. Comparable-store sales grew 21.9% year over year. Sturdy demand for Microsoft Corporation’s (MSFT) Xbox One and Sony Corp’s (SNE) PlayStation 4 aided the year-over-year increase in net sales and comparable-store sales. Moreover, strength witnessed across the mobile & consumer electronics category also supported top-line growth.

Despite an impressive performance in the last concluded quarter, management reiterated its fiscal year earnings guidance of $3.40 to $3.70 per share as it braces for tough year-over-year comparison in the third quarter from the video game Grand Theft Auto V, released last year. We are also concerned about increasing online gaming activities as well as shifting preferences toward tablets and mobile phones from traditional game consoles.

GameStop currently carries Zacks Rank #3 (Hold).

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