Customers outside a Game Stop store.
Guido Krzikowski | Bloomberg | Getty Images
Shares of GameStop dropped more than 15percent in extended trading Tuesday after the company reported second quarter earnings and sales that missed analysts’ expectations while significantly lowering its same-store earnings prediction.
The company has been struggling to increase sales as customers increasingly turn to buying games and gaming consoles on the internet, through e-commerce websites such as Amazon. Trends like gambling on tablets or on a computer also have grown in popularity, which can be stealing sales from GameStop’s brick-and-mortar stores. Additionally, it has been some time since customers have gotten excited about a new gaming system.
“While we experienced sales declines across a number of our categories during the quarter, these trends are consistent with what we have historically observed towards the end of a hardware cycle,” CFO Jim Bell said, in a written statement.
Here is what the company reported compared with what Wall Street expected, according to a poll of analysts by Refinitiv:
- Adjusted earnings per share: reduction of 32 cents vs. 21 cent loss anticipated
- Revenue: $1. 29 billion $1. 34 billion anticipated
GameStop reduced its same-store sales forecast for its financial year. It said it now expects sales at stores open at least 12 weeks to drop in the low teens, compared with previous expectations of a reduction between 5 percent and 10%.
It also said it intends to spend less on capital expenditures, lowering its forecast to a range of $90 million to $95 million compared with a prior expectation of $100 million to $110 million.
“We will continue to manage the underlying businesses to produce meaningful cash returns, while maintaining a strong balance sheet and investing responsibly in our strategic initiatives,” Bell said.
GameStop said its net loss widened to $415.3 million, or $4. 15 a share, from a loss of $24.9 million, or 24 cents a share, a year before. Excluding a $400.9 million impairment charge and other items, the company’s adjusted loss from continuing operations was 32 cents a share. Analysts expected a loss of 21 cents a share, according to a poll from Refinitiv.
It may be too soon to tell if the earnings miss is a blow to Michael Burry’s thesis about GameStop. In August, the investor, who is known for his calls on the subprime mortgage market which were featured in the publication “The Big Short,” said he thought GameStop still had upside potential. Sony and Microsoft’s forthcoming consoles will have physical sensory drives, which will extend GameStop’s life considerably, ” he informed Barron’s. He said the stock looks worse than it is. Shares of GameStop jumped more than 18percent on that report.
Currently, the stock is trading at around $5 and has dropped nearly 60% since January. The business has a market value of $521 million.