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GameStop's (GME) Q2 Loss Wider Than Estimates, Sales Rise

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GameStop Corp. (GME - Free Report) reported second-quarter fiscal 2021 results, with the top line increasing year over year and surpassing the Zacks Consensus Estimate. However, the company reported a loss that was wider than the consensus mark.

The company continues to suspend the guidance for the fiscal year. This along with a dismal bottom-line performance marred investor’s confidence, as shares of the company fell 8.6% in the after-market trading hours on Sep 8.

Shares of the company have declined 34.3% in the past three months compared with the industry’s fall of 16.3%.

Nevertheless, management is progressing well with its growth endeavors. The Zacks Rank #3 (Hold) company is focused on expanding product catalog, enhancing fulfillment network capabilities and technology as well as adding talent across the organization. Efforts to strengthen the balance sheet have been yielding.

Zacks Investment ResearchImage Source: Zacks Investment Research

Q2 in Details

GameStop posted an adjusted loss of 76 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 42 cents. In the year-ago quarter, the company reported an adjusted loss of $1.42.  

Net sales amounted to $1,183.4 million, which surpassed the Zacks Consensus Estimate of $942 million and increased 25.6% on a year-over-year basis. Management highlighted that the company was able to achieve top-line growth despite a 9% decline in store base, owing to strategic de-densification strategy and continued store closures across certain international markets due to the COVID-19 pandemic. We note that the company has been undertaking appropriate investments to boost digital capabilities and product offerings. These are likely to have aided the company’s performance.  

By sales mix, hardware and accessories sales increased 38% to $609.6 million. Software sales rose 2.6% to $396.6 million and collectibles sales surged 55.6% to $177.2 million.

Gross profit increased 27.2% year over year to $320.9 million, while gross margin expanded 30 basis points (bps) to 27.1%.

Selling, general and administrative (SG&A) expenses amounted to $378.9 million, up 8.8% year on year. As a percentage of sales, SG&A expenses contracted 700 bps. Further, adjusted SG&A expenses (after adjusting severance, divestitures, transformation and other costs) went up 10.5% year on year to $372.3 million. As a percentage of sales, adjusted SG&A expenses contracted 430 bps to 31.5%, driven by store reopening after widespread shutdowns due to the pandemic in the year-ago quarter.

The company’s adjusted operating loss amounted to $51.4 million in the reported quarter. It had reported an adjusted operating loss of $84.7 million reported in the prior-year quarter.

Adjusted EBIDTA loss came in at $29.5 million compared with adjusted EBIDTA loss of $62.4 million in the prior-year quarter.

GameStop Corp. Price, Consensus and EPS Surprise

 

GameStop Corp. Price, Consensus and EPS Surprise

GameStop Corp. price-consensus-eps-surprise-chart | GameStop Corp. Quote

 

Other Financial Aspects

As of Jul 31, 2021, GameStop had cash and restricted cash amounting to $1.78 billion. Cash and cash equivalents were $1,720.4 million. The company ended the quarter with no net short-term debt (including the current portion of long-term debt). Net long-term debt consisted only of $47.5 million worth low-interest loan associated with the French government’s pandemic response. Compared with second-quarter 2020 levels, the company’s debt levels were down $424.7 million. Stockholders’ equity was $1,852 million.

In the second quarter, cash flow used in operating activities was $11.5 million compared with an inflow of $192.8 million in the year-ago quarter. This was largely due to the investments in inventory. Negative free flow for the 13-week ended Jul 31, amounted to $25 million.

Capital expenditures in the second quarter amounted to $13.5 million, bringing the year-to-date investments to $28.2 million.

Other Notable Updates

In June this year, GameStop had completed the sale of 5-million shares of its common stock through its ATM Offering program. It generated net gross proceeds of nearly $1.1 billion. The company intends to continue using the proceeds for accelerating its transformation efforts as well as for general corporate purposes and strengthening the balance sheet. As a result of the ATM Offering, the company now has total shares outstanding of approximately 75.9 million.

The company’s refreshed board has been undertaking prudent measures to boost customers’ experience as well as provide higher returns to shareholders. The company has been progressing well with fortifying infrastructure and technology capabilities. In this context, it is on track with adding more talented individuals across the organization with expertise in e-commerce, UI, UX, operations and supply chain. The company is also focused on competitive pricing, expensive selection and fast shipping.

Further, the company is continuing to expand its fulfillment network. The company entered into a lease for a 530,000-square feet facility in Reno, NV, which is expected to be in operation this year. Prior to this, the company entered into a lease for a 700,000-square feet facility in York, PA. This facility began shipping orders during the second quarter. Owing to these expansions, the company’s fulfillment network spans across both coasts of Continental U.S. Management informed that the company has entered into a lease for a new customer care center in Pembroke Pines, FL, as it continues to build out customer care operations in the United States. Apart from these, the company is striving to expand the product catalog by adding new products and leading brands across electronics, collectibles, toys and more. Speaking of stores, the company now operates 4,642 stores globally.

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