GameStop baffles Wall Street with good earnings, bad forecast

GameStop exceeded its projected income in the third quarter so much that it threw off analysts' projections for the fourth quarter.

Wall street analysts cannot seem to get a bead on GameStop right now. The company surprised everyone in its third fiscal quarter, exceeding revenue forecasts by $200 million, and posting a $52 million net income, or 31 cents per share.

Revenue was boosted by swift sales of highly anticipated games: Halo 3, Madden NFL, Guitar Hero III, and even with less-anticipated but nonetheless successful games such as Bioshock.

This subsequently drove up its stock value, nearly doubling versus the previous year. But today, the company announced its forecast earnings for the next quarter, which includes the 2007 holiday season, and the outlook doesn't have nearly as rosy a finish to it.

Analysts were forecasting $1.01 per share during the upcoming sales boom, but GameStop's guidance only forecasts earnings between 95 and 97 cents per share for the fourth quarter. This discrepancy may seem small when viewed on the per share level, but zoom out to the macro level and you're looking at a $5 - 10 million margin between the company's forecast and the analysts'.

This "lowering of the bar" initially caused GameStop stock to drop a sharp 8% in value this morning, though it later regained some footing.

In regards to his company's last quarter, GameStop CEO and Chairman R. Richard Fontaine said his company's expenses and inventory controls have never been better planned and executed.