This company, primarily stores of video game hardware, software, and pre-owned video products, has been grouped into console and PC game stores sector in toys and gaming industry.
It seems that the demand, excluding the effect of timing of new release, for software (console) products of games of physical stores in this sector has been largely shrinking in the past several years as indicated by decrease in the same store software products sales of typical retailers. Hardware products of games, while seem to have gained strong support by release of new version console and new games, have also presented weak demand. Demand for digital products has continuingly increasing.
The typical gross margin is about 33% presenting an improvement due to shifting of sale to digital products, SG&A is about 28% presenting an increase due to deleveraging of shrinking sales, and operating margin is about 5% in 2018. The typical enterprise cash flow/EBI ratio is 8. The average annual decrease in EBI/share is more than 10% in the past three years.
It seems that the demand for in-stores gaming product of this company has been declining in the past several years. Excluding the effect of timing of new release, software products sales of games has been seen largely declining. Release of new games and new version consoles seem to have large positive impact on sales of console hardware products.
The first three months of fiscal 2018 compared with the same period of 2017 (ended March 31 2018)
Net revenue (excluding effect currency) decreased 7.5%.
Comparable store revenue decreased 5.3% due to decrease in software (10%), hardware (8%), and pre-owned products.
Fiscal 2017 compared with fiscal 2016
Net revenue (excluding effect of extra week and currency) increased 4.3%.
Comparable store revenue increased 5.8% due to increase in hardware (28%) and software (4%) as a result of new game release.
Fiscal 2016 compared with fiscal 2015
Net revenue decreased 8.1%.
Comparable store revenue decreased 11% due to decrease in software (14%) and hardware (28%).
Its gross margin was up from about 31% to33% in 2018 primarily due to shifting of sales to higher margin products (digital products and AT&T products). However, due to increase in its SG&A as percentage of sales (up to about 28% due to expansion of new stores), we see a shrink in operating margin (down to about 5% in 2018). Its average EBI/share has been seen decreasing continuingly during the same period of time.
Stock performance
This company is having an enterprise price/EBI ratio of 8. We think that its stock is being relatively undervalued.
