Piper Jaffray Comments On GameStop Ahead Of Monthly Sales Numbers

Piper Jaffray expects that GameStop GME out-performed category trends during January. Piper believes that packaged goods game retailers will reduce category shelf space during 2011 & 2012 as the category continues to shrink at a swift pace. That said, GameStop management continues to be optimistic regarding category trends and will likely grow its U.S. store base during 2011. GameStop is already over-stored in the U.S and should stop new store openings. The cultural shift to digital entertainment is negative for retailers like GameStop. Further, it's not clear if GameStop has a viable strategy to answer consumers needs for online and digital games. In Piper's view, the outlook for game retailers is incrementally more negative. Piper expects GameStop's business will fade slowly, yet generate material cash flows during 2011/2012. It projects GameStop's net income will decline during 2011, but EPS will benefit from accelerated share buyback programs. Piper Jaffray does not recommend GME. Piper has a $17 PT and Underweight rating on GME GME closed Friday at $20.28