Taking in used merchandise for store credit to be exchanged for other pre-owned items or new games has proven to be highly lucrative for GameStop Corp. The company’s gross margin on used games was 47 percent compared with just 10 percent on new hardware the last fiscal year, according to the Wall Street Journal.
GameStop has skeptics questioning the used-game business after the release of Sony’s Playstation 4 and Microsoft’s Xbox One. Investors have sold more than one-third of available shares because they believe they will be able to purchase them at a lower price after the stocks fall. GameStop, however, seems to be in the clear to meet its fairly wide guidance range for the quarter of an increase of one to five percent in same-store sales and earnings per share of between 58 and 64 cents, according to WSJ.
One of GameStop’s biggest challenges comes in the digital form. Game makers are now bypassing brick-and-mortar retailers and angling for a bigger cut through digital downloads. Another challenge the company faces are holiday sales, as some blockbuster releases have been delayed until 2015. If GameStop’s business model has proven anything, it is that its loyalty program helps retain customers. If the company surpasses the holiday season challenges, it will once again prove short sellers wrong.
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