GameStop Down 7% After-Hours As Earnings Fail To Impress

Shares in GameStop (GME) pulled back 7% in Tuesday’s after-hours trading following the company’s disappointing earnings results.

While Q1 Non-GAAP EPS of -$1.61 beat Street estimates by $0.08, GAAP EPS of -$2.57 missed expectations by $0.43. Revenue of $1.02B fell short of estimates by $70 million and represented a 34% year-over-year decrease.

Meanwhile comparable sales fell by 30% vs the -27.5% consensus, and comparable store sales dropped 17% excluding stores closed. After including the impact of stores closed due to Covid-19, comparable stores sales decreased by 30%.

However, on the bright side, global E-commerce sales increased 519% year-over-year, despite severely limited distribution operations across international businesses.

GameStop also noted that fiscal May comparable store sales declined 4%, as heightened demand for its product offerings was tempered by the expected decline in sales as a result of the final stage of a hardware console cycle and the shift of several key new software titles to later in the year.

Importantly, the strength of E-Commerce sales continued in May, with global E-Commerce growth in fiscal May up over 1400%.

Given efforts to reduce expenditure, and the expected trajectory of the business, GameStop anticipates it will generate positive adjusted EBITDA for fiscal 2020.

“While we delivered a loss for the quarter in total, our performance included total sales just shy of our original expectations, even as stores closed due to the COVID-19 pandemic and key video game titles shifted to the second and third quarters, exacerbating the headwind from operating in the final stage of a console cycle” commented CEO George Sherman.

Analysts are not optimistic about the company’s prospects- the stock shows a Moderate Sell consensus with analysts divided between hold and sell ratings. The average analyst price target stands at $3.75 indicating further downside potential of 24%. Shares are already trading down 19% on a year-to-date basis. (See GME stock analysis on TipRanks)

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