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Alberto Abaterusso
Alberto Abaterusso
Articles (2610) 

GameStop Tumbles After Release of 3rd-Quarter Figures

The US video game company misses analysts on adjusted earnings and net sales

December 11, 2019 | About:

GameStop Corp’s (NYSE:GME) stock price tumbled 14.44% to $5.57 per share in extended trading on Tuesday after missing analysts’ expectations on adjusted earnings and net sales for the third quarter of fiscal 2019, which ended on Nov. 2.

The U.S. multichannel video game operator and consumer electronics retailer posted an adjusted loss of 49 cents per diluted share, disappointing analysts who were expecting a net profit of 11 cents per diluted share. The adjusted earnings per diluted share slumped 200% year over year, as GameStop posted a net profit per diluted share of 49 cents in the same quarter of fiscal 2018.

Net sales came in at $1.44 billion, declining nearly 26% year over year and falling $180 million short of expectations. Net sales deterioration was mainly a result of a 23.2% decrease in same-store sales.

In a statement, CEO George Sherman explained third-quarter results:

“Our third quarter results continue to reflect the prevailing industry trends, most notably the unprecedented decline in new hardware sales seen across the market as the current generation of gaming consoles reach the end of their lifecycle and consumers delay their spending in anticipation of new hardware releases. With console makers set to introduce new and innovative gaming consoles late next year, we anticipate this trend to continue until the fourth quarter of 2020.”

By segment, year over year GameStop noted a 46% net sales loss in new video game hardware to $189 million and a 32.6% net sales drop in new video game software to $485.9 million. New software sales were impacted by sluggish launches of software titles for other consoles than the Nintendo Switch video game console.

Further, video game products and accessories totaled $500.7 million in net sales, declining 13.3%, and digital sales accounted for $37 million, declining 18.5%. Total other sales fell 26.5% to $64.7 million.

In contrast, collectibles made net sales of $161.2 million in the third quarter of fiscal 2019, up 4.3% from the third quarter of fiscal 2018.

George Sherman added:

“Despite the current top-line trends, we are pleased with the continued strong progress that we are making against our strategic initiatives as we transform GameStop for the future. We remain on track to achieve our $200 million annualized operating profit improvement goal, by 2021 and we believe our strategic initiatives will enable to us to achieve our long-term growth and profit objectives as we fully leverage our unique leadership position and brand in the video game space.”

For full fiscal 2019, GameStop expects a same-store sales decline in the high teens compared to the previous view of a decline in low teens. The company also forecasts that adjusted earnings per diluted share will fluctuate between 10 cents and 20 cents versus consensus estimates of $1.21. Total funds allocated to capital expenditures are anticipated at $80-$85 million.

The balance sheet had $290.3 million in cash and cash equivalents and $1.29 billion in total merchandise inventories as of Nov. 2. Total debt was $419.4 million, down 49% from the beginning of fiscal 2019, and total equity was worth $617.1 million.

Shares of GameStop have fallen 48% so far this year to trade around a price of $6.51 per unit at close on Tuesday. The share price is still above the 120-, 70- and 30-day simple moving average lines.

The stock has a market capitalization of $588.9 million and a 52-week range of $3.15 to $16.9.

Wall Street issued a hold recommendation rating for shares of GameStop Corp and has established an average target price of $4.78.

Disclosure: I have no positions in any security mentioned.

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About the author:

Alberto Abaterusso
I am a contributor at GuruFocus. I primarily write about how to pick potential value stocks. Gold, silver and precious metals mining industries is also my cup of tea. My articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. I hold a Master\\\'s Degree in Business Administration from Università degli Studi di Bari (Italy), Aldo Moro. I am based in The Netherlands.

You can follow me on Twitter at https://twitter.com/AAbaterusso

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