02:25 PM EDT, 03/25/2024 (MT Newswires) -- GameStop ( GME ) checks show upside to fourth-quarter revenue amid the timing of software releases but the video game retailer faces ongoing challenges to achieving sustainable growth, according to Wedbush Securities.

The brokerage is modeling for sales of $2 billion during the quarter, which implies a year-over-year decline of about 10% despite an extra week. It expects earnings per share of $0.25, an improvement from GameStop's ( GME ) $0.16 EPS posted a year ago. The consensus is for stronger sales of $2.05 billion and EPS of $0.30.

"GameStop ( GME ) appears set to deliver solid, if unspectacular, (fiscal fourth-quarter) results," Wedbush analysts Michael Pachter and Nick McKay said in a research note Monday. GameStop ( GME ) is scheduled to report results on Tuesday. Its shares rocketed more than 13% in Monday's midday trade.

Overall industry sales were up modestly in the quarter as declining hardware sales were offset by strong software releases, the analysts wrote. While the company is expected to have benefited from these wider industry trends, "continued losses in market share and a mix shift towards digital likely led to underperformance," Pachter and McKay said.

Industrywide, hardware sales declines were led by the Switch, with Nintendo posting a 9% year-over-year decline for its device sales, Wedbush said. Microsoft ( MSFT ) delivered a 3% increase in Xbox hardware revenue while Sony beat its record for quarterly unit sales of the PlayStation 5 but lowered its unit guidance for the year.

GameStop's ( GME ) bottom line should benefit from a mix shift towards higher-margin software and recent cost control measures like closing stores and cutting staff, the analysts said. However, Wedbush reiterated its underperform rating and $6 price target, pointing to GameStop's ( GME ) ongoing obstacles to "return to sustained growth."

GameStop's ( GME ) shares "continue to trade at a level that fails to fully account for the many challenges ahead," Pachter and McKay said. Growth of subscription services and "the lack of a clear strategy to enter new categories with compelling growth potential" by GameStop ( GME ) are additional challenges the company faces, the analysts said.

Wedbush does not expect GameStop ( GME ) to provide fiscal 2024 guidance since the company has not provided sales and earning guidance since 2019. The brokerage estimates full-year revenue of $5 billion and EPS of $0.04, below the Street's view of $5.2 billion and $0.12, respectively.

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