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GameStop (GME) Set to Sell Shares, Unveils Preliminary Sales

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GameStop Corp. (GME - Free Report) is set to cash-in on its phenomenal price surge on the bourses, triggered by the much acclaimed trading frenzy these past months. This gaming retailer will be selling up to 3.5 million shares and plans to utilize the proceeds to support its ongoing organizational transformation as well as strengthen balance sheet. However, investors didn’t seem pleased with the announcement, as shares began falling in yesterday’s pre-market session. The stock finally closed at a drop of 2.4% on Apr 5.

In a separate release, the company announced preliminary sales numbers for the first nine weeks of fiscal 2021. Let’s look closer into these developments.

Equity Offering is a Prudent Move

GameStop will be selling up to 3,500,000 shares of its common stock through an “at-the-market” equity offering program (“ATM Offering”). The stock offering will be carried out from time to time, through its sales agent — Jefferies LLC. Industry experts opine that the company’s decision to sell shares will help it take advantage of the massive price surge witnessed since January, due to potential short-squeeze events. Notably, shares of the company have skyrocketed 918.3% in the past three months compared with the industry’s rise of 39.9%.


With respect to the ATM Offering, the company did not provide a timeline for completing the program. Management highlighted that shares offered under this program will not exceed $1 billion in aggregate gross proceeds. The net proceeds will be used to further accelerate its transformation as well as for general corporate purposes and strengthening its balance sheet.

We note that the company is undertaking prudent efforts to fast track growth, especially by expanding digital capabilities. For accelerating business transformation, GameStop has been restructuring its board and has formed a Strategic Planning and Capital Allocation Committee. Since the formation of this committee, the company has appointed several board executives with significant experience in e-commerce, customer care and technology. Moreover, the influx of cash through the latest equity offering will further strengthen the company to undertake radical transformation initiatives. Such moves are expected to help the company evolve into a strong and digitally advanced player in the gaming industry.

Preliminary Sales Numbers Look Encouraging

GameStop registered total global sales growth of nearly 11% for the first nine weeks of first-quarter fiscal 2021 ended Apr 3, 2021 compared with the nine-week period ended Apr 4, 2020.

In February, total global sales increased approximately 5.3%, for the four-week period ended on Feb 27, 2021, compared with the four-week period ended Feb 29, 2020. In March, total global sales increased approximately 18%, for the five-week period ended Apr 2, compared with the five-week period ended Apr 4, 2020.

Markedly, the company has been able to achieve sales growth despite challenges related to the COVID-19 pandemic. Management highlighted that during the first nine week of fiscal 2021, the company witnessed limited operations, primarily in Europe, due to pandemic-led government mandated restrictions. Also, the company operated with a 13% decline in its store base, due to strategic store-optimization efforts. Additionally, the company notified that the preliminary sales numbers may change as they are subject to closing processes and adjustments.

Looking For Retail Stocks? Check These

Conns, Inc. (CONN - Free Report) , flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 8.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Five Below, Inc. (FIVE - Free Report) , with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 32.8%.

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