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GameStop Might be Seeking Potential Buyers: What's Behind?

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Following the 9% rally on Monday, shares of GameStop Corp. (GME - Free Report) continued the bullish run into Tuesday as well, rising nearly 3%. This upswing came after the company confirmed holding exploratory talks relating to a potential transaction with third parties. However, management stated that there is no guarantee of any deal after these discussions.

This Monday, Reuters reported that the videogame retailer company might be holding discussions with private equity firms, where Sycamore Partners is one of the potential firms to express interest in GameStop.

Industry experts believe this Grapevine, TX-based company has been grappling with declining sales in core business, affected by intense competition from bigwigs, like Amazon, and unstable leadership positions.

 

GameStop Corp. Price, Consensus and EPS Surprise

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

Notably, the company’s earnings have been declining, year over year, over the last couple of quarters. Its first-quarter fiscal 2018 earnings plunged 39.7% year over year, following a 15.1% fall in the fourth quarter of fiscal 2017. Earnings also deteriorated 11.4% year over year in fiscal 2017.

Also, the company continues to expect fiscal 2018 adjusted earnings per share in the range of $3.00-$3.35, which does not look much encouraging when compared to earnings of $3.34 reported in fiscal 2017. These factors might have weighed on investors’ sentiments as GameStop’s shares have declined 17.4% over the past three months compared with the industry’s decline of 9.1%.

Apart from these, gross margin, a key financial metric determining a company’s basic financial health, has consistently declined in the past few quarters. In the fiscal first quarter, gross margin shrunk 30 basis points (bps) to 34%, following contraction of 380 bps to 29.3%, and 140 bps to 34.7% in fourth and third quarters of fiscal 2017, respectively.

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