GameStop Corp. (GME) Drops 20% on Weak New Video Game Software Sales

GameStop Corp. (NYSE:GME) declined nearly 20% to $36.31 per share after reporting its mixed sales performance during the holiday season. The downward movement of the stock was primarily caused by the 22.5% sales drop in new video game software during the period.

The stock price of the video game retailer was also negatively impacted by its lower guidance for the fourth quarter. GameStop Corp. (NYSE:GME) expect to deliver earnings in the range of $1.85 to $1.95 per share. The company previously projected to generate around $1.97 to $2.14 per share in the fourth quarter.

GameStop Corp (NYSE:GME) explained that its lower guidance for the fourth quarter was due to the transitional period towards new video game consoles. Arvind Bhatia, analyst at Sternee Agee opined that the weak sales in new video game software showed that “people are moving on to the next gen faster.” He added that it is a “classic transition time.”

For the full year 2013, the video game retailer expects to achieve earnings of about $2.96 to $3.06 per share.

During the holiday season, GameStop Corp. (NYSE:GME) said its total global sales increased by 9.3% to $3.15 billion. Its total comparable store sales climbed 10.2% including a 7.1% in U.S. comparable stores sales and 17.4% international comparable store sales. According to the video game retailers, its comparable store sales were positively impacted by the sales of new video games consoles given the 99.8% increase in new hardware sales.

Rob Lloyd, chief financial officer of GameStop Corp. (NYSE:GME) said, “Clearly, same store sales were driven by very strong growth in new hardware. The higher percentage of sales in the hardware category resulted in better than expected comps, but lower gross margin dollars during the holiday selling period.”

On the other hand, GameStop CEO Paul Raines said, “I am pleased to report that the extensive planning by our entire team over the past year to prepare for the new console launches paid off. Our outstanding execution during the holidays resulted in GameStop securing the number one market share position in the U.S. and in most of the countries in which we operate today. GameStop also had the highest software and accessory attach ratio of any retailer for both new consoles. Building off this momentum, we are in an excellent position to drive the global adoption of the next generation of new video game products in 2014.”

GameStop Corp. (NYSE:GME) repurchased 800,500 shares of its common stock during the holiday period.