Shares of GameStop Corp. GME have tumbled 14.4% during the after-market trading session on Dec 10. The stock’s downside was caused by dismal third-quarter fiscal 2019 results. In the quarter, the top and the bottom line missed the Zacks Consensus Estimate and fared unfavorably compared with prior-year quarter’s figures. Investors’ sentiments were hurt by management’s trimmed outlook for fiscal 2019 earnings, comparable-store sales and adjusted free cash flow.
The Grapevine, TX-based company’s performance was hurt by sluggish store sales due to customers delaying console purchases until the launch of generation nine consoles from Sony and Microsoft by the end of 2020. Also, a shift to digital download as well as streaming of games continues to be a headwind. Unfortunately, management expects this trend to persist in the fourth quarter of fiscal 2020.
Nevertheless, the company is exiting loss-incurring businesses and closing underperforming stores. Management expects to shut around 230-250 underperforming stores worldwide by the end of fiscal 2019. Also, GameStop is on track to wind down operations in Denmark, Finland, Norway and Sweden to counter the weak industry trends.
This apart, management is undertaking strategic initiatives to bring the company back on track. These involve cost-containment efforts, optimization of inventory and focus on high margin product categories. This makes GameStop optimistic about its goal to achieve $200 million annualized operating profit improvement by 2021.
GameStop’s adjusted loss from continuing operations came in at 49 cents per share against the Zacks Consensus Estimate of earnings of 6 cents. The reported figure also compares unfavorably with adjusted earnings from continuing operations of 49 cents per share in the year-ago period.
Net sales declined 25.7% year over year (24.7% on a constant-currency basis) to $1,438.5 million thanks to soft comparable store sales performance, store closures and adverse currency fluctuations. Moreover, the top line lagged the Zacks Consensus Estimate of $1,613.9 million, marking its fourth consecutive miss.
We note that, shares of this Zacks Rank #5 (Strong Sell) company have plunged 48.5% in the past year against the industry’s rise of 44.5%.
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