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GameStop's (GME) Q4 Earnings Miss Estimates, Sales Down Y/Y
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GameStop Corp. (GME - Free Report) reported fourth-quarter fiscal 2020 results, with the top and the bottom line missing the Zacks Consensus Estimate. Moreover, revenues declined year on year, while earnings increased from the year-ago quarter’s level.
Performance during the quarter was affected by store closures, which were undertaken as part of the company’s de-densification efforts. Also, temporary store closures in Europe due to the COVID-19 pandemic were a drag on the company’s top line. The dismal performance in the quarter dented investors’ sentiments, as shares dropped 15.2% during the after-market trading hours on Mar 23.
Nevertheless, the company’s e-commerce platform has continued to remain sturdy. Management expects to keep gaining in its digital front. Additionally, management is encouraged by the strong start to fiscal 2021. Markedly, the company’s comparable store sales increased 23% in February 2021, backed by strength in global hardware sales. During fiscal 2021, the company intends to focus on strengthening e-commerce capabilities, enhance delivery speed, boost customer services as well as expand product catalogue.
We note that shares of this Zacks Rank #3 (Hold) company have skyrocketed 802% in the past three months compared with the industry’s growth of 45.5%.
Q4 in Details
GameStop posted adjusted earnings of $1.34 per share, which missed the Zacks Consensus Estimate of $1.46. The bottom line increased 5.5% from $1.27 reported in the year-ago quarter.
Net sales amounted to $2,122.1 million, which missed the Zacks Consensus Estimate of $2,242 million and declined 3.3% on a year-over-year basis. The company’s top-line performance was affected by 12% decline in store base, owing to strategic de-densification strategy. Moreover, a 27% reduction in store operating days in Europe, due to temporary store closures amid the pandemic was a drag on the top line. Nevertheless, comparable store sales (comps) in the reported quarter increased 6.5%.
Notably, the company’s e-commerce business remained sturdy with sales surging 175% during the quarter under review. E-commerce sales were included in comparable store sales. Total e-commerce sales contributed 34% to net sales during the quarter compared with contribution of 12% in the prior-year quarter. Results gained from increase in demand for consoles, as the company transitioned from generation eight to generation nine console gaming products.
By sales mix, hardware and accessories sales increased 20.5% to $1,162.7 million. Software sales fell 25.7% to $731.2 million, while collectibles sales dropped 6.9% to $228.2 million.
Moving on, gross profit fell 24.9% year over year to $448.6 million. Gross margin contracted 610 basis points to 21.1%. The downside was caused by mix shift toward lower margin console sales with respect to the launch of generation 9 consoles, higher freight costs and credit card processing fees stemming from increased penetration of e-commerce sales as well as increased promotional expenditures.
Selling, general and administrative (SG&A) expenses amounted to $419.1 million, down 18% from $511.7 million in the prior-year quarter. The company’s cost-optimization efforts aided this decline. Further, adjusted SG&A expenses declined 14% to $419.7 million in the reported quarter.
The company reported adjusted operating income of $28.9 million that fell 73.5% from $109.2 million in the year-ago quarter.
GameStop ended the quarter with cash and cash equivalents of $508.5 million, short-term debt of $146.7 million, long-term debt of $216 million and stockholders’ equity of $436.7 million. As of Jan 30, 2021, the company’s outstanding borrowings under its asset based revolving credit facility were $25 million, which were subsequently repaid on Mar 15, 2021. Following this repayment as well as the redemption of 6.75% senior notes due in 2021, the company had $48.5 million of short-term debt and $216 million of long-term debt remaining on its balance sheet as of Mar 15, 2021.
At the end of the fourth quarter, accounts payable were down 10.2% year on year to $341.8 million, while total inventory of $602.5 million was down 30%.
During fiscal 2020, the company’s net cash flows provided by operating activities amounted to $123.7 million. The company incurred capital expenditures of $60 million during fiscal 2020.
Store & Other Updates
As part of the strategic store de-densification strategy, the company shuttered 232 stores during the fourth quarter and a net of 693 stores during fiscal 2020. Sales from these closed stores were transferred to the company’s online channel as well as neighboring locations. The company now operates 4,816 stores globally.
We note that the company undertook board restructuring during the fourth quarter. It added three new members — Alan Attal, Jim Grube and Ryan Cohen — to its board. The company also formed a Strategic Planning and Capital Allocation Committee for accelerating its business transformation. Since the formation of this committee, the company appointed a chief technology officer and several other executives with significant experience in e-commerce, customer care and technology. Recently, the company appointed Jenna Owens as its chief operating officer. Additionally, it appointed Neda Pacifico as senior vice President of e-commerce, while Ken Suzuki was appointed as vice president of supply chain systems. Management also informed that beginning from the first-quarter fiscal 2021, the company intends to transform its method of communicating quarterly results.
Tapestry, Inc. (TPR - Free Report) , carrying a Zacks Rank #2 (Buy) at present, has a long-term earnings growth rate of 10%.
Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 32.8%.
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GameStop's (GME) Q4 Earnings Miss Estimates, Sales Down Y/Y
GameStop Corp. (GME - Free Report) reported fourth-quarter fiscal 2020 results, with the top and the bottom line missing the Zacks Consensus Estimate. Moreover, revenues declined year on year, while earnings increased from the year-ago quarter’s level.
Performance during the quarter was affected by store closures, which were undertaken as part of the company’s de-densification efforts. Also, temporary store closures in Europe due to the COVID-19 pandemic were a drag on the company’s top line. The dismal performance in the quarter dented investors’ sentiments, as shares dropped 15.2% during the after-market trading hours on Mar 23.
Nevertheless, the company’s e-commerce platform has continued to remain sturdy. Management expects to keep gaining in its digital front. Additionally, management is encouraged by the strong start to fiscal 2021. Markedly, the company’s comparable store sales increased 23% in February 2021, backed by strength in global hardware sales. During fiscal 2021, the company intends to focus on strengthening e-commerce capabilities, enhance delivery speed, boost customer services as well as expand product catalogue.
We note that shares of this Zacks Rank #3 (Hold) company have skyrocketed 802% in the past three months compared with the industry’s growth of 45.5%.
Q4 in Details
GameStop posted adjusted earnings of $1.34 per share, which missed the Zacks Consensus Estimate of $1.46. The bottom line increased 5.5% from $1.27 reported in the year-ago quarter.
Net sales amounted to $2,122.1 million, which missed the Zacks Consensus Estimate of $2,242 million and declined 3.3% on a year-over-year basis. The company’s top-line performance was affected by 12% decline in store base, owing to strategic de-densification strategy. Moreover, a 27% reduction in store operating days in Europe, due to temporary store closures amid the pandemic was a drag on the top line. Nevertheless, comparable store sales (comps) in the reported quarter increased 6.5%.
Notably, the company’s e-commerce business remained sturdy with sales surging 175% during the quarter under review. E-commerce sales were included in comparable store sales. Total e-commerce sales contributed 34% to net sales during the quarter compared with contribution of 12% in the prior-year quarter. Results gained from increase in demand for consoles, as the company transitioned from generation eight to generation nine console gaming products.
By sales mix, hardware and accessories sales increased 20.5% to $1,162.7 million. Software sales fell 25.7% to $731.2 million, while collectibles sales dropped 6.9% to $228.2 million.
Moving on, gross profit fell 24.9% year over year to $448.6 million. Gross margin contracted 610 basis points to 21.1%. The downside was caused by mix shift toward lower margin console sales with respect to the launch of generation 9 consoles, higher freight costs and credit card processing fees stemming from increased penetration of e-commerce sales as well as increased promotional expenditures.
Selling, general and administrative (SG&A) expenses amounted to $419.1 million, down 18% from $511.7 million in the prior-year quarter. The company’s cost-optimization efforts aided this decline. Further, adjusted SG&A expenses declined 14% to $419.7 million in the reported quarter.
The company reported adjusted operating income of $28.9 million that fell 73.5% from $109.2 million in the year-ago quarter.
GameStop Corp. Price, Consensus and EPS Surprise
GameStop Corp. price-consensus-eps-surprise-chart | GameStop Corp. Quote
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $508.5 million, short-term debt of $146.7 million, long-term debt of $216 million and stockholders’ equity of $436.7 million. As of Jan 30, 2021, the company’s outstanding borrowings under its asset based revolving credit facility were $25 million, which were subsequently repaid on Mar 15, 2021. Following this repayment as well as the redemption of 6.75% senior notes due in 2021, the company had $48.5 million of short-term debt and $216 million of long-term debt remaining on its balance sheet as of Mar 15, 2021.
At the end of the fourth quarter, accounts payable were down 10.2% year on year to $341.8 million, while total inventory of $602.5 million was down 30%.
During fiscal 2020, the company’s net cash flows provided by operating activities amounted to $123.7 million. The company incurred capital expenditures of $60 million during fiscal 2020.
Store & Other Updates
As part of the strategic store de-densification strategy, the company shuttered 232 stores during the fourth quarter and a net of 693 stores during fiscal 2020. Sales from these closed stores were transferred to the company’s online channel as well as neighboring locations. The company now operates 4,816 stores globally.
We note that the company undertook board restructuring during the fourth quarter. It added three new members — Alan Attal, Jim Grube and Ryan Cohen — to its board. The company also formed a Strategic Planning and Capital Allocation Committee for accelerating its business transformation. Since the formation of this committee, the company appointed a chief technology officer and several other executives with significant experience in e-commerce, customer care and technology. Recently, the company appointed Jenna Owens as its chief operating officer. Additionally, it appointed Neda Pacifico as senior vice President of e-commerce, while Ken Suzuki was appointed as vice president of supply chain systems. Management also informed that beginning from the first-quarter fiscal 2021, the company intends to transform its method of communicating quarterly results.
Stocks to Consider in Retail
Hibbett Sports, Inc. , currently flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 17.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tapestry, Inc. (TPR - Free Report) , carrying a Zacks Rank #2 (Buy) at present, has a long-term earnings growth rate of 10%.
Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 32.8%.
Time to Invest in Legal Marijuana
If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027.
After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%
You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.
Today, Download Marijuana Moneymakers FREE >>