Shares of GameStop Corp. are tumbling 15% in Thursday’s pre-market trading after the video gaming rental chain missed 2Q estimates due to lower store base and operating days amid the COVID-19 pandemic.
GameStop (GME) posted an adjusted loss of $1.40 per share, which widened from the year-ago loss of $0.32 per share. Analysts had anticipated a loss of $1.13 per share. 2Q revenues declined 26.7% to $942 million year-over-year, falling short of analysts’ expectations of $1.019 billion. Same-store sales plunged 12.7% year-over-year.
Meanwhile, the company reported an 800% increase in global e-commerce sales, a $133.7 million reduction in selling, general & administrative expenses, strong positive cash flows and progress toward its strategic objectives.
GameStop’s CEO George Sherman stated, “While the ongoing pandemic continues to create a somewhat uncertain environment in the short term, we are very pleased by the consumer response at GameStop to the few recent video game product introductions and we believe we are ready, with expanded service and payment options, to handle the expected surge in demand and participate in a very significant way in the console launches later this year.” (See GME stock analysis on TipRanks).
Ahead of the 2Q results, Wedbush analyst Michael Pachter increased the stock’s price target to $8 (8.8% upside potential) from $5m but maintained a Hold rating. Pachter had anticipated significant upside relative to its estimates and to consensus. The analyst had expected 2Q sales of $643 million with adjusted loss of $1.90 per share. He had also been looking for “modest positive free cash flow.” He said “Sequential EPS improvement seems possible, with GameStop likely able to streamline in-store staffing and re-negotiate lease terms to accelerate its long-term cost cutting efforts.”
Currently, the Street is in line with Pachter’s Hold rating. The average price target of $5.50 implies downside potential of 25.2% to current levels. Shares have already gained about 20.9% year-to-date.