GameStop Keeps Promising a Stellar 2010 yet Shares Fall

GameStop Corp.'s (NYSE:GME) CEO keeps saying 2010 is going to be a record year, just like 2008 was for the game industry when sales hit $21 billion.  But what if GameStop's CEO and fearless leader Dan DeMatteo is wrong?  You can bet shareholders are growing tired of promises of grandeur while traders are having a field day playing the volatility of GME shares.

For the last 3 months GameStop shares have been stuck in the $21 to $26 valley and after today's report of Q2 earnings falling 32%, its not going to get better in the short run.  The big issue for GameStop is investors are taking a leap of faith in management with their projections that things are going to improve, yet every few months the news seems to get worse. 

SHRINKING GUIDANCE
GameStop now expects 2009 earnings of $2.40 to $2.64 a share, from its prior guidance of $2.83 to $2.93 a share. Analysts recently were looking for $2.76. GameStop also expects same-store sales to decline 4% to 8%.  For the fiscal third quarter, the company expects earnings of 27 cents to 33 cents and a same-store-sales decline of 6% to 11%. Analysts were looking for 41 cents.

But Dan DeMatteo, CEO of GameStop, believes 2010 is shaping up to be another banner year. Speaking on the conference call following the retailer's Q2 fiscal results, he stated: "To all of you who follow this industry, I would like you to begin thinking in respect to 2010 and what it's going to look like, and I think if you look at the model of 2008 you're going to find a very similar set of circumstances in 2010 that will drive the business bigger for both us and the entire industry."

SHOW ME THE MONEY
Look, CEO's can promise the world, but if you can't deliver and change your guidance every few months Wall Street is going to lose faith in you.  Show me the Money, let's see the bottom line improve for GameStop.  The bigger issue for GameStop is they are dependent on game makers and console price cuts (or improvements) to help them get back to the growth they experienced in 2008.  The company is putting too much responsibility on other companies to help bring GME shares back to the promise land.

GameStop now has a P/E under 10, but P/E's don't mean much these days if you can't see and touch the money.  I want to buy GME at these levels because the stock seems so cheap, but Dan DeMatteo has got to show me the money before I place my bet on a turnaround.

Disclaimer: No positions in GME.