GameStop Corp. (NYSE:GME) will release the results from its fourth fiscal quarter before opening bell on Thursday. Analysts at BMO Capital Markets have released their projections for those results in a report dated March 24, 2014.
GameStop likely affected by weather
Analyst Edward Williams and his team believe GameStop Corp. (NYSE:GME) saw strong hardware sales during the fourth quarter but weaker software sales. This is because the quarter was a transitional one, as the Xbox One and the PlayStation 4 were launched.
In addition, they believe the retail chain’s January sales could have been negatively impacted by the challenging weather during the month. Of course they expect those weather challenges to have extended into the April quarter and believe they will also affect the current quarter’s sales.
Projecting a solid quarter for GameStop
Nonetheless, the BMO team expects solid, but declining results from GameStop Corp. (NYSE:GME). They’re projecting $3.799 billion in revenue and $1.96 per share in earnings for the quarter. That’s a bit ahead of consensus estimates, which are at $3.787 billion in revenue and $1.93 per share in earnings.
The analysts are expecting to see about a 300 basis point decline in gross margins, which they expect fell to 24.4% year over year. They see the main drivers of that decline as being a revenue mix shift toward hardware sales as well as declining sales of legacy software. They’re predicting operating margins to be at 9.5%, compared to 11.6% the year before.
Looking ahead for GameStop
In spite of these expected declines, they don’t think GameStop Corp. (NYSE:GME)’s performance in the most recently completed quarter are “indicative” of what its future performance will be for the rest of this year. They emphasized again that the shift toward the next generation gaming consoles is likely creating challenges for the retail chain.
The BMO team continues to rate GameStop Corp. (NYSE:GME) as Market Perform with a price target of $40 a share. They say if hardware sales were indeed strong during the fourth quarter, it will be good for the next console cycle. However, they note that there is a short-term headwind from weaker sales of legacy software sales which puts pressures on the company’s gross margins and near-term earnings. In addition, they see a potentially even greater headwind from how comfortable consumers are becoming with buying their games via a digital download.