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Why Is GameStop (GME) Down 15.9% Since Last Earnings Report?
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A month has gone by since the last earnings report for GameStop (GME - Free Report) . Shares have lost about 15.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is GameStop due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
GameStop's Q3 Loss Wider Than Expected, Sales Rise Y/Y
GameStop Corp. posted lower-than-expected third-quarter fiscal 2021 results. While the top line continued to increase year over year, the bottom-line loss widened from the year-ago period.
Nevertheless, management is progressing well with its growth endeavors, while maintaining a sturdy balance sheet. GameStop has been increasing product catalog across consumer electronics, PC gaming, collectibles, toys and other categories. The company is enhancing fulfillment operations and technology as well as strengthening e-commerce capabilities and improving speed of delivery and service to customers. It is also exploring emerging opportunities in blockchain, non-fungible tokens, and Web 3.0 gaming.
Q3 in Details
GameStop posted an adjusted loss of $1.39 per share wider than the Zacks Consensus Estimate of a loss of 22 cents. In the year-ago quarter, the company reported an adjusted loss of 53 cents.
The video game retailer reported net sales of $1,296.6 million that fell short of the Zacks Consensus Estimate of $1,303 million. Nonetheless, the metric surged 29.1% from the year-ago period. This year-over-year increase was primarily attributable to ongoing demand of the new video game consoles from Sony and Microsoft, and continued sell-through of the Nintendo gaming product lines. The company also witnessed higher store traffic compared with the last year.
Management highlighted that new and expanded brand relationships with Samsung, LG, Razer, Vizio and others contributed to the company's growth. The company’s focus on front-loading investments in inventory is helping it meet sturdy demand and mitigate supply chain challenges.
By sales mix, hardware and accessories sales surged 62% to $669.9 million. Software sales fell 2.2% to $434.5 million, while collectibles sales rose 30.8% to $192.2 million. During the quarter, net sales in the United States, Canada, Europe, and Australia segments increased 31.8%, 22.2%, 30.4% and 14.3%, respectively.
Margins
Gross profit increased 15.3% year over year to $318.6 million, while gross margin contracted 290 basis points to 24.6%. This reflects a shift in product mix toward higher dollar lower margin categories such as new console hardware as stores reopened for customers, and increased freight and credit card fees associated with the shift to e-commerce sales.
Adjusted SG&A expenses jumped 17.2% to $421.5 million during the quarter due to costs associated with transformation efforts undertaken to evolve into a technology company. As a percentage of net sales, adjusted SG&A expenses improved to 32.5% during the quarter under review from 35.8% in the year-ago period, owing to lower store occupancy costs, as a percentage of net sales, driven by cost containment endeavors in fiscal 2020 and 2021. These net reductions include 449 permanent store closures since Oct 31, 2020 as part of the de-densification of store base.
The company’s adjusted operating loss amounted to $102.9 million in the reported quarter. It had reported an adjusted operating loss of $83.4 million in the prior-year quarter. Adjusted EBIDTA loss was $79.8 million compared with adjusted EBIDTA loss of $61.8 million in the prior-year quarter.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $1,413 million, restricted cash of $39.5 million and stockholders’ equity of $1,754.9 million. The company had no debt other than a $46.2 million low-interest, unsecured term loan associated with the French government’s response to the pandemic. The company strengthened its financial position by securing a new $500 million ABL facility, which closed early in November.
During the third quarter, cash flows from operating activities were an outflow of $293.7 million compared with an outflow of $184.6 million in the year-ago quarter. This was primarily due to an increase in merchandise inventory levels. Inventory was $1,140.9 million at the end of the quarter under discussion compared with $861 million at the close of the prior-year quarter. Capital expenditures in the third quarter amounted to $12.5 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -27.83% due to these changes.
VGM Scores
At this time, GameStop has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise GameStop has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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Why Is GameStop (GME) Down 15.9% Since Last Earnings Report?
A month has gone by since the last earnings report for GameStop (GME - Free Report) . Shares have lost about 15.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is GameStop due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
GameStop's Q3 Loss Wider Than Expected, Sales Rise Y/Y
GameStop Corp. posted lower-than-expected third-quarter fiscal 2021 results. While the top line continued to increase year over year, the bottom-line loss widened from the year-ago period.
Nevertheless, management is progressing well with its growth endeavors, while maintaining a sturdy balance sheet. GameStop has been increasing product catalog across consumer electronics, PC gaming, collectibles, toys and other categories. The company is enhancing fulfillment operations and technology as well as strengthening e-commerce capabilities and improving speed of delivery and service to customers. It is also exploring emerging opportunities in blockchain, non-fungible tokens, and Web 3.0 gaming.
Q3 in Details
GameStop posted an adjusted loss of $1.39 per share wider than the Zacks Consensus Estimate of a loss of 22 cents. In the year-ago quarter, the company reported an adjusted loss of 53 cents.
The video game retailer reported net sales of $1,296.6 million that fell short of the Zacks Consensus Estimate of $1,303 million. Nonetheless, the metric surged 29.1% from the year-ago period. This year-over-year increase was primarily attributable to ongoing demand of the new video game consoles from Sony and Microsoft, and continued sell-through of the Nintendo gaming product lines. The company also witnessed higher store traffic compared with the last year.
Management highlighted that new and expanded brand relationships with Samsung, LG, Razer, Vizio and others contributed to the company's growth. The company’s focus on front-loading investments in inventory is helping it meet sturdy demand and mitigate supply chain challenges.
By sales mix, hardware and accessories sales surged 62% to $669.9 million. Software sales fell 2.2% to $434.5 million, while collectibles sales rose 30.8% to $192.2 million. During the quarter, net sales in the United States, Canada, Europe, and Australia segments increased 31.8%, 22.2%, 30.4% and 14.3%, respectively.
Margins
Gross profit increased 15.3% year over year to $318.6 million, while gross margin contracted 290 basis points to 24.6%. This reflects a shift in product mix toward higher dollar lower margin categories such as new console hardware as stores reopened for customers, and increased freight and credit card fees associated with the shift to e-commerce sales.
Adjusted SG&A expenses jumped 17.2% to $421.5 million during the quarter due to costs associated with transformation efforts undertaken to evolve into a technology company. As a percentage of net sales, adjusted SG&A expenses improved to 32.5% during the quarter under review from 35.8% in the year-ago period, owing to lower store occupancy costs, as a percentage of net sales, driven by cost containment endeavors in fiscal 2020 and 2021. These net reductions include 449 permanent store closures since Oct 31, 2020 as part of the de-densification of store base.
The company’s adjusted operating loss amounted to $102.9 million in the reported quarter. It had reported an adjusted operating loss of $83.4 million in the prior-year quarter. Adjusted EBIDTA loss was $79.8 million compared with adjusted EBIDTA loss of $61.8 million in the prior-year quarter.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $1,413 million, restricted cash of $39.5 million and stockholders’ equity of $1,754.9 million. The company had no debt other than a $46.2 million low-interest, unsecured term loan associated with the French government’s response to the pandemic. The company strengthened its financial position by securing a new $500 million ABL facility, which closed early in November.
During the third quarter, cash flows from operating activities were an outflow of $293.7 million compared with an outflow of $184.6 million in the year-ago quarter. This was primarily due to an increase in merchandise inventory levels. Inventory was $1,140.9 million at the end of the quarter under discussion compared with $861 million at the close of the prior-year quarter. Capital expenditures in the third quarter amounted to $12.5 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -27.83% due to these changes.
VGM Scores
At this time, GameStop has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise GameStop has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.