Gamestop Inflection Point

In January 2016, many analysts were calling for a rally in Gamestop based on strong holiday sales and positive sales comps in the 2.5% to 4.0% range. Gamestop released earnings this past Thursday and largely met those expectations:

Consolidated comparable store sales increased 3.1% (a 3.0% increase in the U.S. and a 3.3% increase internationally).

When taking a closer look at the numbers, Gamestop's largest revenue category new video game software was down year over year for the quarter. Additionally, their digital revenue was 14% year over year and now makes up a measly 1.7% of Gamestop's total business. I haven't been quiet about the competitive pressures and changing consumer habits Gamestop is facing and believe this next quarter is the inflection point for Gamestop weakness to accelerate. Just take one look at Gamestop's outlook for 2016: 

                                                 First Quarter            Fiscal Year 2016
Total Sales                                -7.0% to -4.0%         0.0% to +3.0%
Comparable Store Sales          -9.0% to -7.0%         -3.0% to 0.0%

Down to flat for fiscal 2016 means more pain ahead. Store closings and a reduction in share repurchases are inevitable.