GameStop's (GME) Q4 Earnings Beat Estimates, Stock Rises
Zacks Investment Research | Mar 27, 2020 08:44AM ET
Shares of GameStop Corp. (NYSE:GME) increased roughly 10% during the after-market trading session on March 26. This upside can be attributed to the company’s positive earnings surprise during fourth-quarter fiscal 2019, which follows a miss in the preceding two quarters. Further, management’s commentary that it is experiencing a positive impact on its business due to the coronavirus outbreak contributed to the stock’s upside.
However, we note that the company continued to grapple with dismal top-line performance. Net sales not only missed the Zacks Consensus Estimate for the fifth quarter in row but also declined year over year. Comparable store sales results also disappointed. Further, management highlighted that the company continues to witness temporary headwind related to lower current generation console hardware and software sales. This is due to customers delaying console purchases in anticipation of new platform launches expected in the later part of 2020.
Nonetheless, this Grapevine, TX-based company is trying all means to uplift performance. GameStop is exiting loss-incurring businesses and closing underperforming stores. The company began to wind down operations in Denmark, Finland, Norway and Sweden to counter the weak industry trends, and is likely to exit these markets by late July. The company is utilizing the proceeds from sale of non-core business units to lower debt burden.
Undoubtedly, GameStop remains focused on containing costs, optimizing inventory and expanding high margin product categories such as PC gaming accessories, private label and collectibles. The company also plans to augment store experience, expand and redesign PowerUp Rewards loyalty program, enhance digital capabilities and improve engagement with vendors and partners. The company is also augmenting omni-channel features such as “Buy Online Pick Up In Store.”
Notably, the company attained cost reduction of $130 million on an adjusted basis, lowered inventory by 31% that contributed to gross margin expansion and reduced debt load by $401 million during fiscal 2019. The company closed net 321 stores — inclusive of 333 closings and 12 openings — during fiscal 2019, and plans to close an equivalent number of stores or more in fiscal 2020.
Shares of this Zacks Rank #2 (Buy) company have surged 22.5% in a month against the Original post
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