Markets & Finance

Southwest Keeps 'Strong Buy' on GameStop

Southwest Securities reiterated its strong buy rating on GameStop (GME).

Analyst Arvind Bhatia says the results from the video-game software maker came in at the high end of management's guidance. Despite the absence of a hardware price cut from Sony, which makes PlayStation video-game consoles, Bhatia says GameStop's same-store sales drop was also in line with the company's estimate. He notes total sales rose about 14%, driven by a solid 18% rise in software sales. Also, he says gross margins improved 100 basis points on more favorable sales and a better store mix.

However, selling, general, and administrative expenses, as a percentage of sales, rose 40 basis points due to effects of a rapid new store expansion over the last 12 months to 18 months. As new stores ramp-up sales, Bhatia expects GameStop to begin seeing some leverage on this expense line.

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