GameStop Corp. (NYSE: GME) stock lost over 8.6% on March 29th, 2018 (as of 12:49PM EDT; Source: Google finance) due to weak 2017 performance and outlook.
For 2017, the group’s pre-owned business fell over 5% as compared to the earlier year. Despite a decent performance in new hardware and software sales, especially around Nintendo Switch console, the group sees the pre-owned categories experienced a natural softness. Moreover, their technology Brands performance, was not as expected. The changes in the compensation structure made by AT&T, the delayed and staggered launch of the iPhone 8 and iPhone X and operational execution challenges, led to a lower than expected sales and profitability.
The tech brands, revenues fell 14% on the back of disappointing expected iPhone launch during the quarter. Tech brands revenue declined 1% to $804 million in FY17, as the compensation change, the slowdown in the upgrade cycle and the weaker iPhone launch impacted results.
The gross margins fell 380 basis points during the quarter to 29.3% and 200 basis points for the year, leading to a 33% margin rate. The fall was mainly on the back of the extraordinary strength of hardware sales in the quarter and the year. The decline in pre-owned business and the mix shift away from tech brands also hurt their gross margin rate. Gross profit for the year rose $31 million to $3 billion and the 53rd-week in fiscal 2017 contributed roughly $43 million in gross profit dollars.
The group’s hardware and software margins fell during the quarter while Pre-owned sales or pre-owned margins were 45% for the quarter, a decline of 190 basis points. For the year, pre-owned margins were 45.5%, a decline of 80 basis points.
For fiscal 2018, the group expects revenues to fall in the range of 6% and 2%, with same-store sales ranging from down 5% to flat. They forecast growth in the collectibles business, while the video game business is expected to decline mid-single digits on the back of the overlap of the huge success of the Switch.
On the other hand, the group’s video game business performance was decent during the fourth quarter boosted by Nintendo Switch success. This innovative console was the main contributor to their comp sales growth and drove a 45% increase in hardware sales for the quarter and a 28% increase for the year. Software sales rose 12% during the quarter and nearly 4% for the year.