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GameStop, the world’s biggest game retailer, reported second-quarter earnings today that beat Wall Street’s. But as physical store sales continue to decline, the earnings weren’t anything to brag about.

Revenues were $1.55 billion, down 11.1 percent compared to $1.74 billion a year ago. Net income was $21 million, compared with $30.6 million a year earlier. Earnings per share were 16 cents, compared with 22 cents a year ago. Same-store sales, or those stores open for more than a year, decreased 9.3 percent versus a year ago. The bright spot was digital sales, which rose 27 percent to $134 million. Mobile sales were $29 million, on track to beat the company’s annual forecast of $150 million to $200 million this year.

The company attributed the lower sales to slow traffic because of a lack of new game releases, causing both new software and hardware sales to drop sharply. Used game sales dropped 11.2 percent.


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Analysts had expected non-GAAP earnings of 15 cents a share. Michael Pachter, an analyst at Wedbush Securities, said in a report released before the earnings announcement that weak console software and hardware sales would likely drive GameStop to report lower figures than a year ago. He said digital and mobile growth are not likely to offset declines in the core business of selling games at stores. Arvind Bhatia, an analyst at Sterne Agee, said in a pre-earnings report that same-store sales would likely be down 12.5 percent — below management’s guidance of down 5 percent to 11 percent. One of the things that is hurting, according to R.W. Baird analyst Colin Sebastian, is that there are 30 percent fewer new console title releases this year.

Chief executive officer Paul Raines said in a statement, “We continue to see solid sales growth as well as strong margins in our new retail offerings and digital channels. We are focused on staying ahead of the curve as the competitive landscape evolves and we manage through the trough of the console cycle. Finally, the ongoing share buyback and increase in dividend demonstrate our confidence in the future of GameStop and our commitment to improving total shareholder returns.”

GameStop has 6,614 company-operated stores in 15 countries, but it has also been expanding into digital game distribution with its acquisition of independent game portal Kongregate and cloud-gaming service Spawn Labs. The stock will live or die on how well GameStop makes the transition from physical game sales to digital distribution. Even so, GameStop still generates annual revenues of more than $9 billion, or about 50 percent of the entire retail market for games in the U.S. It remains one of the most influential companies in the business.

Cash on hand is $138.7 million, compared with $224.8 million a year ago. For the third fiscal quarter that closes at the end of October, GameStop expects same-store sales to drop 5 percent to 10 percent. Diluted earnings per share are expected to be 28 cents to 36 cents. The company is maintaining its full-year guidance of $3.10 to $3.30 in earnings per share. Same-store sales for the year are expected to be down 2 percent to 10 percent. Right now, the company’s market value is lower than its net book value of equity, so it is considering writing off goodwill and other intangible assets. GameStop also raised its quarterly dividend by 67 percent to 25 cents a share.

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