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Factors Likely to Cast a Pall Over GameStop (GME) Q2 Earnings

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GameStop Corp. (GME - Free Report) is likely to register a decline in the top line when it reports second-quarter fiscal 2020 numbers on Sep 9, after the closing bell. The Zacks Consensus Estimate for revenues is pegged at $937.5 million, which indicates a decline of 27.1% from the year-ago quarter’s reported figure.

The Zacks Consensus Estimate for the bottom line is pegged at a loss of $1.27, which suggests deterioration from a loss of 32 cents reported in the year-ago quarter. The consensus estimate has remained stable in the past 30 days. Notably, this video game retailer’s bottom line outperformed the Zacks Consensus Estimate in the last reported quarter by 8.5%.

Aspects That May Impact Q2 Metrics

Store closures at some point of time during the quarter are likely to have adversely impacted GameStop’s second-quarter performance. We note that almost 85% of the company’s stores located in the United Sates were reopened by the end of May for limited customer access or curbside delivery. The company had earlier also pointed out that nearly 35 stores were affected by social unrest. These stores are likely to have stayed shut during the second quarter due to extensive damages. Cumulatively, these are likely to have impacted the company’s sales results. In its last earnings call, management notified that comparable store sales for the month of May have slid approximately 4%.

Apart from this, softness in current generation console hardware and software sales are likely to have been a headwind. This is due to customers delaying console purchases in anticipation of new platform launches expected in the later part of 2020.

Nevertheless, GameStop’s strategic endeavors to bring the company back on track are appreciable. These involve cost containment efforts, optimization of inventory, focusing on high margin product categories. Further, the company has been enhancing omni-channel features such as “Buy Online Pick Up In Store” and ship from store capabilities to meet the increased online demand for products, amid the ongoing pandemic. These efforts are expected to have offered some cushion during the quarter under review.

GameStop Corp. Price, Consensus and EPS Surprise GameStop Corp. Price, Consensus and EPS Surprise

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

What the Zacks Model Unveils

Our proven model does not conclusively predict a beat for GameStop this earnings season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GameStop has a Zacks Rank #4 (Sell)and an Earnings ESP of 0.00%.

3 Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

RH (RH - Free Report) has an Earnings ESP of +13.47% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darden Restaurants (DRI - Free Report) has an Earnings ESP of +67.17% and a Zacks Rank #2.

Costco (COST - Free Report) has an Earnings ESP of +2.50% and a Zacks Rank #3.

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