It has been about a month since the last earnings report for GameStop (GME). Shares have lost about 0.7% 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 posted second-quarter fiscal 2024 results, wherein the top line missed the Zacks consensus estimate and declined year over year. However, the company’s earnings per share surpass estimates and compared favorably with the year-ago figure. Higher inflationary pressures on consumer spending in the gaming industry have been resulting in lower demand and, in turn, weighing on the company’s results.
GME posted adjusted earnings per share of 1 cent in second-quarter fiscal 2024, beating the Zacks Consensus Estimate of an adjusted loss of 1 cent. The company reported an adjusted loss of 3 cents in the prior-year quarter.
GameStop reported net sales of $798.3 million, which missed the consensus estimate of $900 million. Also, the metric decreased 31.4% from $1,163.8 million in the year-ago quarter. Lower sales across all the categories contributed to soft sales.
By sales mix, hardware and accessories sales fell 24.4% to $451.2 million from $597 million in the year-ago quarter. Software sales were $207.7 million, down 47.7% from $397 million in the year-ago quarter. Sales in the collectibles unit declined 17.9% to $139.4 million from $169.8 million in the year-ago quarter.
Gross profit decreased 18.7% to $248.8 million from $305.9 million in the year-ago quarter. We note that gross margin expanded 490 basis points (bps) year over year to 31.2% in the quarter under review.
Adjusted selling, general and administrative (SG&A) expenses declined 14.1% to $280.4 million from $326.6 million in the year-ago quarter. As a percentage of net sales, adjusted SG&A expenses were 35.1%, up 700 bps from 28.1% in the year-ago period.
The company’s adjusted operating loss was $31.6 million in the reported quarter compared with an adjusted operating loss of $20.7 million in the prior-year period.
GameStop ended the fiscal second quarter with cash and cash equivalents of $4.19 billion, net long-term debt of $12.4 million, and stockholders’ equity of $4.38 billion. Merchandise inventory was $560 million at the end of the reported quarter compared with $676.9 million at the close of the prior-year quarter.
During the 13 weeks ended Aug. 3, 2024, the net cash flow provided by operations was $68.6 million against an outflow of $109.1 million in the prior-year period. The free cash flow during the same period was $65.5 million. Capital expenditure in the 13 weeks amounted to $3.1 million.
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -100% due to these changes.
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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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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