Video game retailer GameStop last week posted surprisingly strong first-quarter results. Comparable-store sales jumped higher by 9%, blowing past management's expectation for a 6% gain. Profit surged higher by 15% to $0.68 per share.
After the announcement, CEO Paul Raines and his executive team held a conference call with Wall Street analysts to provide more detail on GameStop's business and outlook. Here are five highlights from that presentation.
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The core business model is healthy
The retailer set a new first-quarter market share record in its core video game business, accounting for just under half of the industry's sales. GameStop is reaping the benefits of a dominant position in a video game cycle that is stronger than any prior console cycle.
Rivals, including traditional retailersWal-Mart and Best Buy , continue to lose ground to GameStop's buy-sell-trade approach. "The model of reserving games, providing unique content, and delivering midnight launches continues to differentiate us in the market," Raines said.
"One significant global driver of GameStop same-store sales and profitability increase during the quarter was the expansion of our license, merchandise, and collectibles category, or what our customers like to call loot." -- President, International Mike Mauler.
Source: GameStop investor presentation.
GameStop also continues to show its flexibility by growing sales in categories that aren't limited to video game software and hardware. Branded products including toys, collectibles, and apparel sold briskly during the quarter. Management believes this business segment can grow to $500 million a year by 2017. This year's sales should be driven by releases in popular franchises including Avengers, Hunger Games, and Star Wars.
Solid digital downloads
GameStop's digital business posted solid growth during the quarter, with total sales up 23% over the prior year on a 77% profit margin. That growth pace is on par with Electronic Arts' latest numbers. Meanwhile, the other two major game publishers, Activision Blizzard and Take-Two, managed heftier 45% gains. Still, digital revenue is a tiny portion of GameStop's business, weighing in at just 2% of sales during the quarter.
Tech brands: strong and growing
Management's push to diversify beyond video game retailing is paying off. The company's technology brands unit, which includes cell phone service and consumer electronics sales under the Simply Mac, Cricket, and Spring Mobile brands, booked 70% growth in the quarter as operating margin leaped from 36% a year agoto 40%.
And GameStop is planning a huge summer for the division: It will open 200 new stores in the next few months, four times the highest number of openings it has ever managed.
Bumpy ride for the second quarter
Last summer's release of Mario Kart 8 sets a high sales bar for the second quarter. Source: Nintendo.
The video game industry faces a tough comparison this summer that will likely lead to flat or even lower overall sales. The prior-year period had two huge blockbusters: Nintendo's Mario Kart 8 and Ubisoft's Watch Dogs. Meanwhile, this year's comparable releases, The Witcher 3 and Batman: Arkham Knight, aren't expected to match 2014's banner summer launches.
That's why management sees second-quarter comps ranging between 0% and 3%, for a significant slowdown from the first quarter's 10% bounce.
The article 5 Things GameStop Corp.s Management Wants You to Know originally appeared on Fool.com.
Demitrios Kalogeropoulos owns shares of Activision Blizzard and Apple. The Motley Fool recommends Activision Blizzard and Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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