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GameStop (GME) Down 13.2% Since Last Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for GameStop (GME - Free Report) . Shares have lost about 13.2% 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 Q1 Loss Narrower-Than-Expected, Sales Up
GameStop reported better-than-expected first-quarter fiscal 2021 results. The company was able to achieve significant top-line growth, while the bottom line loss contracted on a year-over-year basis. Notably, the company witnessed sales growth across all categories.
Management remains impressed with growth witnessed in the quarter, despite store closures that were undertaken as part of the company’s de-densification efforts. Also, temporary store closures in Europe due to pandemic were a drag. Progressing on its growth endeavors, the company has been on track with strengthening balance sheet. This includes noteworthy steps undertaken to eliminate long term debt. Also, the company intends to sell more shares under its “at-the-market” equity offering program (the “ATM Offering”) for bolstering financial position as well as aiding business transformation. Further, the company announced new inclusions to its board.
Moving on, management highlighted that second-quarter sales trend continue to reflect growth. Total sales in May increased nearly 27% year on year. However, the company continues to suspend the guidance for the fiscal year.
We note that shares of the company dropped 5.2% during the after-market trading hours on June 9.
Q1 in Details
GameStop posted adjusted loss of 45 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 67 cents. In the year-ago quarter, the company reported adjusted loss of $2.44.
Net sales amounted to $1,276.8 million, which surpassed the Zacks Consensus Estimate of $1,176 million and increased 25% on a year-over-year basis. Prudent efforts to boost digital business capabilities as well as product offerings contributed to the company’s performance in the quarter. Markedly, it was able to achieve top-line growth despite a 12% decline in store base owing to strategic de-densification strategy as well as continued store closures across Europe due to the COVID-19 pandemic.
By sales mix, hardware and accessories sales increased 37.1% to $703.5 million. Software sales fell 4.6% to $397.9 million, while collectibles sales increased 93% to $175.4 million.
Moving on, gross profit increased 16.9% year over year to $330.1 million. However, gross margin contracted 180 basis points (bps) to 25.9%. The downside was caused by increased mix of lower margin sales.
Selling, general and administrative (SG&A) expenses amounted to $370.3 million, down 4.2% year on year. As a percentage of sales, SG&A expenses improved 880 bps. Further, adjusted SG&A expenses (after adjusting severance, transformation and other costs) declined 7.7% year on year and reflected 10 percentage points of sales leverage.
The company’s adjusted operating loss amounted to $21.6 million in the reported quarter. This compares with adjusted operating loss of $98.8 reported in the prior-year quarter.
Adjusted EBIDTA loss came in at $0.7 million compared with adjusted EBIDTA loss of $75.5 million in the prior-year quarter.
Other Financial Aspects
As of May 1, 2021, GameStop has cash and restricted cash amounting to $770.8 million. Cash and cash equivalents were $694.7 million. Moreover, the company ended the quarter with net short-term debt (including current portion of long-term debt) of $48.1 million and stockholders’ equity of $879.5 million. Compared with year-ago quarter’s figures, overall debt levels were reduced by $504 million. This reflects the redemption of $202 million of senior notes due in 2021, the voluntary early redemption of $216.4 million of 10% senior notes due in 2023 (which represented the company’s entire long-term debt) as well as the paydown of the company’s asset-based revolving credit facility worth $135 million. At the end of the quarter, the company had no borrowings under its asset-based revolving credit facility and no long-term debt.
We note that GameStop completed the sale of 3.5 million shares of its common stock through its ATM Offering program. It generated collective gross proceeds before commissions and offering expenses of nearly $551 million. The company intends to continue using the proceeds for accelerating its transformation efforts as well as for general corporate purposes and strengthening balance sheet. As a result of the ATM Offering, the company now has total shares outstanding of approximately 71.9 million. Additionally, the company announced a new ATM offering for a prospectus filing under which it may offer and sell up to 5 million shares.
At the end of the first quarter, accounts payable were up 83.2% year on year to $388.6 million, while merchandise inventory of $570.9 million was down 12.8%.
For the 13-weeks ended May 1, 2021, the company’s net cash flows used in operating activities amounted to $18.8 million. The company incurred capital expenditures of $14.7 million during the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -17.02% due to these changes.
VGM Scores
Currently, GameStop has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. Notably, GameStop has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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GameStop (GME) Down 13.2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for GameStop (GME - Free Report) . Shares have lost about 13.2% 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 Q1 Loss Narrower-Than-Expected, Sales Up
GameStop reported better-than-expected first-quarter fiscal 2021 results. The company was able to achieve significant top-line growth, while the bottom line loss contracted on a year-over-year basis. Notably, the company witnessed sales growth across all categories.
Management remains impressed with growth witnessed in the quarter, despite store closures that were undertaken as part of the company’s de-densification efforts. Also, temporary store closures in Europe due to pandemic were a drag. Progressing on its growth endeavors, the company has been on track with strengthening balance sheet. This includes noteworthy steps undertaken to eliminate long term debt. Also, the company intends to sell more shares under its “at-the-market” equity offering program (the “ATM Offering”) for bolstering financial position as well as aiding business transformation. Further, the company announced new inclusions to its board.
Moving on, management highlighted that second-quarter sales trend continue to reflect growth. Total sales in May increased nearly 27% year on year. However, the company continues to suspend the guidance for the fiscal year.
We note that shares of the company dropped 5.2% during the after-market trading hours on June 9.
Q1 in Details
GameStop posted adjusted loss of 45 cents per share, which was narrower than the Zacks Consensus Estimate of a loss of 67 cents. In the year-ago quarter, the company reported adjusted loss of $2.44.
Net sales amounted to $1,276.8 million, which surpassed the Zacks Consensus Estimate of $1,176 million and increased 25% on a year-over-year basis. Prudent efforts to boost digital business capabilities as well as product offerings contributed to the company’s performance in the quarter. Markedly, it was able to achieve top-line growth despite a 12% decline in store base owing to strategic de-densification strategy as well as continued store closures across Europe due to the COVID-19 pandemic.
By sales mix, hardware and accessories sales increased 37.1% to $703.5 million. Software sales fell 4.6% to $397.9 million, while collectibles sales increased 93% to $175.4 million.
Moving on, gross profit increased 16.9% year over year to $330.1 million. However, gross margin contracted 180 basis points (bps) to 25.9%. The downside was caused by increased mix of lower margin sales.
Selling, general and administrative (SG&A) expenses amounted to $370.3 million, down 4.2% year on year. As a percentage of sales, SG&A expenses improved 880 bps. Further, adjusted SG&A expenses (after adjusting severance, transformation and other costs) declined 7.7% year on year and reflected 10 percentage points of sales leverage.
The company’s adjusted operating loss amounted to $21.6 million in the reported quarter. This compares with adjusted operating loss of $98.8 reported in the prior-year quarter.
Adjusted EBIDTA loss came in at $0.7 million compared with adjusted EBIDTA loss of $75.5 million in the prior-year quarter.
Other Financial Aspects
As of May 1, 2021, GameStop has cash and restricted cash amounting to $770.8 million. Cash and cash equivalents were $694.7 million. Moreover, the company ended the quarter with net short-term debt (including current portion of long-term debt) of $48.1 million and stockholders’ equity of $879.5 million. Compared with year-ago quarter’s figures, overall debt levels were reduced by $504 million. This reflects the redemption of $202 million of senior notes due in 2021, the voluntary early redemption of $216.4 million of 10% senior notes due in 2023 (which represented the company’s entire long-term debt) as well as the paydown of the company’s asset-based revolving credit facility worth $135 million. At the end of the quarter, the company had no borrowings under its asset-based revolving credit facility and no long-term debt.
We note that GameStop completed the sale of 3.5 million shares of its common stock through its ATM Offering program. It generated collective gross proceeds before commissions and offering expenses of nearly $551 million. The company intends to continue using the proceeds for accelerating its transformation efforts as well as for general corporate purposes and strengthening balance sheet. As a result of the ATM Offering, the company now has total shares outstanding of approximately 71.9 million. Additionally, the company announced a new ATM offering for a prospectus filing under which it may offer and sell up to 5 million shares.
At the end of the first quarter, accounts payable were up 83.2% year on year to $388.6 million, while merchandise inventory of $570.9 million was down 12.8%.
For the 13-weeks ended May 1, 2021, the company’s net cash flows used in operating activities amounted to $18.8 million. The company incurred capital expenditures of $14.7 million during the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -17.02% due to these changes.
VGM Scores
Currently, GameStop has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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. Notably, GameStop has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.