GameStop’s stock price drops as strong Xbox One, PlayStation 4 sales don’t help it hit earnings expectations

One of the biggest game retailers in the world didn’t have as great a fourth quarter as many expected.

GameStop reported a net profit of $220.5 million for its fiscal fourth quarter, which ended March 20. That’s down from $261.1 million over the same period in the previous year. Despite the launch of the new consoles, which hit during its fiscal third quarter, and Titanfall, GameStop’s earnings missed analyst expectations. The company’s earnings per share for Q4 came in at $1.89. The Wall Street consensus leading up to this report forecasted an EPS of $1.92. A slow down in last-gen software sales, the supply-constrained PlayStation 4, and a lack of software for both PS4 and Xbox One likely all played a big part in the disappoint results. GameStop also continues to face competition from online retailers and retail outlets like Walmart (which is adding used-game sales).

“The launch of new consoles in 2013 marked the return of innovation to the video game category, and GameStop’s market share increased to an all-time high,” GameStop chief executive officer Paul Raines said. “Our emerging digital and mobile businesses, which did not exist three years ago, surpassed $1 billion of revenue. As we push forward into 2014, both the reenergized video game category and our new Technology Brands business unit provide us with solid growth opportunities in the consumer electronics and wireless markets.”

GameStop is trading down more than 7 percent at around $36 on this news.

The retailer also reported its full fiscal-year results. The company generated $9.04 billion in sales, which is up 1.7 percent compared to $8.89 billion through the previous fiscal year. GameStop credits the release of the Xbox One and PlayStation 4 systems for boosting its performance. It notes that new video game hardware sales increased 29.7 percent year-over-year.

While consumers were investing in new hardware, they spent less on software. New and pre-owned sales dropped 2.8 percent and 4.1 percent, respectively.

As Raines pointed out, the company’s digital business is growing. That sector was up 15.1 percent to $724.4 million for the retailer. That comes from its digital-distribution sales as well as its Kongregate online game portal.

As for fiscal 2014, GameStop is informing investors that it expects growth in net income to increase between 12 percent and 22 percent for the year. It is providing an EPS guidance of $3.40 to $3.70 for fiscal 2014.

The company will also close 2 percent of its stores through this fiscal year. This is fairly standard for the retailer, which often shutters its under-performing locations.