GameStop rising in premarket trading on strong showing for video games over holiday period

MarketsAssociated Press

GameStop's shares are rising in premarket trading Wednesday as the company said that video game demand was strong during the holiday period.

CEO Paul Raines said in a statement late Tuesday that the consumer demand for video games is expected to continue to rise into the first quarter.

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New software sales rose 5.8 percent for the nine-week holiday period ended Jan. 3. It climbed 8.9 percent on a constant currency basis. GameStop Corp. said that the increase was driven by a 94.4 percent rise in PS4 and Xbox One software, including titles like Activision's Call of Duty: Advanced Warfare, Rockstar's Grand Theft Auto V and Ubisoft's Far Cry 4.

Pacific Crest's Evan Wilson said in a client note that the 5.8 percent rise in new software sales was a surprise, as he predicted a 5 percent decline.

The analyst predicts physical software will return to growth in 2015 and anticipates that it will "be the first year of meaningful software growth for GameStop and the industry since 2008 due to a much better and consistent release slate."

Wilson upgraded GameStop to "Outperform" from "Underperform."

In November, GameStop's sales at stores open at least a year fell 12 percent as the prior-year period received a strong boost from the PS4 and Xbox one console launches. Sales at stores open at least a year climbed 4.4 percent in December.

This figure is a key gauge of a retailer's health. It excludes results from stores recently opened or closed.

GameStop now foresees fourth-quarter sales at stores open at least a year down 1 percent to 2.5 percent. Its prior outlook was for a decline of 5 percent to an increase of 2 percent. For the year, the company now expects sales at stores open at least a year to be up 3 percent to 4 percent. Its previous guidance was for a 2 percent to 5 percent increase.

GameStop maintained its fourth-quarter and full-year earnings forecasts. For the quarter, the company still expects earnings in a range of $2.08 to $2.24 per share. It kept its full-year guidance in a range of $3.40 to $3.55 per share.

Analysts polled by FactSet predict fourth-quarter earnings of $2.16 per share and full-year earnings of $3.48 per share.

GameStop's stock gained $3.48, or 10.6 percent, to $36.25 about two hours before the market open.