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GameStop’s fiscal 2012 results were mixed, not a straightforward rise in profits: sales fell 7%, adjusted diluted earnings per share rose 10.5%, and the company reported a $269.7 million GAAP net loss. In its March 28, 2013 announcement, management forecast a difficult first half of 2013 as customers waited for expected holiday console launches.
How sales fell while adjusted earnings per share rose
GameStop reported fiscal 2012 global sales of $8.8867 billion, down 7.0% from $9.5505 billion in fiscal 2011. Comparable-store sales declined 8.0%. Fiscal 2012 contained 53 weeks, compared with 52 weeks in fiscal 2011, so the headline annual sales comparison includes an extra week in the later year. GameStop’s annual guidance also accounted for the difference in year length. GameStop’s March 28, 2013 SEC filing provides the company’s reported figures.
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Adjusted net earnings were nearly flat: $403.0 million for fiscal 2012 versus $405.1 million for fiscal 2011. Adjusted diluted EPS, however, rose 10.5%, to $3.17 from $2.87. GameStop attributed the EPS increase primarily to share buybacks: with fewer shares in the per-share calculation, earnings per share can rise even when total adjusted earnings do not.
GAAP results were a loss, not higher full-year profits
On a GAAP basis, the result attributable to GameStop swung from net earnings of $339.9 million in fiscal 2011 to a net loss of $269.7 million in fiscal 2012. The company recorded $680.7 million in restructuring, impairment, and debt-retirement expenses, primarily related to a goodwill impairment in the third quarter. These charges explain why adjusted earnings and the reported GAAP result tell sharply different stories.
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GameStop’s release said non-GAAP measures “should be viewed in addition to, and not as an alternative for, the company’s reported GAAP financial results.” Adjusted earnings are therefore supplemental measures; they do not change the fact that the company reported a full-year GAAP loss.
The fourth quarter was stronger than the full-year picture
GameStop’s fourth-quarter figures help explain the optimistic “profits up” framing. Net earnings attributable to the company were $261.1 million, compared with $174.7 million in the prior-year quarter. Adjusted net earnings were $262.3 million versus $239.5 million. The quarter included an extra week, which GameStop said contributed approximately $10.1 million of net earnings, or $0.08 per diluted share. This quarterly comparison is distinct from the full-year GAAP loss.
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Digital growth helped offset weakness in the core business
GameStop said its fiscal 2012 gross-margin rate expanded by 170 basis points. Its “Other” category grew 21.2%, driven by digital receipts and mobile sales. In the fourth quarter, digital receipts increased 60.3%, and mobile sales totaled $100.0 million. Management said these channels helped offset weakness in the core business.
Why management expected a challenging 2013
Management expected a difficult first half because consumers were postponing purchases ahead of anticipated console launches in the fourth quarter. The company pointed to Grand Theft Auto V and at least one next-generation console launch by the holiday period as potential industry catalysts. GameStop CEO Paul Raines said: “While 2012 was a challenging year for console gaming, we focused on factors within our control.” He also said the company’s industry market model indicated a return to growth with the launch of new game systems. Contemporaneous GameSpot coverage reported on the company’s outlook.
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GameStop’s March 2013 forecast for fiscal 2013
The figures below were management’s estimates at the time of the March 28, 2013 announcement, not actual results or a current forecast. The annual comparison also needs to be read with the company’s 52-week versus 53-week caveat.
| Measure | Fiscal 2013 forecast |
|---|---|
| Total sales | Down 8.0% to flat |
| Comparable-store sales | Down 6.0% to up 1.5% |
| Diluted EPS | $2.75–$3.15 |
GameStop cautioned that its forward-looking estimates were subject to risks, including product availability, game-release timing, competition and changing technology, alternative distribution methods, and economic or regulatory events. The forecast should be understood as management’s expectation in March 2013, not as a prediction that those outcomes occurred.
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