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It?s never a good sign when Wal-Mart Stores Inc. (WMT) encroaches on your turf.
That?s what happened to GameStop Corp. (GME) earlier this year, when the world?s biggest retailer allowed customers to trade in used video games for store credit. As of last month, Wal-Mart began selling certified pre-owned games including Call of Duty: Advanced Warfare in 1,700 stores.
Projections for a 12 percent sales gain — which would be GameStop?s best holiday period in six years — are now looking too bullish, said Credit Suisse Group AG?s Seth Sigman. Options hedging against share declines in GameStop cost the most versus bullish wagers since at least 2005, according to data compiled by Bloomberg.
?There?s concern that this holiday will disappoint,? Sigman said by phone from New York. ?We?ve had pretty choppy trends throughout this year, yet you have sales estimates at the high end of GameStop?s guidance. That leaves little room for error. If Wal-Mart continues to price the trade-in and the resell more aggressively than GameStop, that?s something to monitor for sure.?
GameStop depends on used-game products for a quarter of revenue, while margins for used games are about double those of new software. The threat from Wal-Mart helped fuel a 11 percent drop in GameStop shares this year through yesterday, and short sellers are betting on even more pain. GameStop dropped 1.2 percent at 10:18 a.m. in New York for a fourth day of declines, its longest losing streak in more than three months.
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