GameStop’s Quarterly Results Disappoint; Shares Drop 15% After-Hours

Shares of GameStop Corp. tanked 15.3% in Tuesday’s extended trading session after the electronics retail company reported fiscal 4Q results (ended Jan. 30) that came in below analysts’ expectations.

GameStop’s (GME) 4Q adjusted earnings of $1.34 per share missed Street estimates by $0.01. Net sales of $2.12 billion came in lower than the consensus estimate of $2.21 billion.

Nonetheless, the company’s bottom line marked a year-over-year improvement of 5.5%, while net sales declined 3.2% year-over-year, impacted by store closures due to the COVID-19 pandemic.

The company’s comparable-store sales rose 6.5% in the quarter, including global e-commerce sales growth of 175%. Gross margin was 21.1%, down 610 basis points.

In 2021, GameStop’s focus will be on its transformation with capitalizing on the emerging console cycle and navigating the COVID-19 pandemic, the company said. (See GameStop stock analysis on TipRanks).

GameStop CEO George Sherman said, “We are off to a strong start in 2021 as February comparable store sales increased 23%, led by continued strength in global hardware sales.”

“Our emphasis in 2021 will be on improving our E-Commerce and customer experience, increasing our speed of delivery, providing superior customer service and expanding our catalogue,” Sherman added.

On March 19, Merrill Lynch analyst Curtis Nagle reiterated a Sell rating and a price target of $10 (94.5% downside potential) on the stock as the analyst argues that trading volumes of GameStop are “steadily declining” and the short interest is “down materially.”

The rest of the Street is cautiously bearish about the stock with a Moderate Sell consensus rating. That’s based on 3 Holds and 2 Sells. The average analyst price target of $18 implies 90% downside potential to current levels.

GameStop gets a 3 out of 10 on TipRanks’ Smart Score ranking suggesting that it is likely to underperform market expectations.

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