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GameStop Stock Could Climb After GME’s Second-Quarter Earnings

It’s a big week for GameStop (NASDAQ:GME) investors as the company prepares to release its second-quarter earnings report today after the market closes. It’s been several months since the company announced it was restructuring its leadership team, so we’ll finally get a look at what kind of progress the company’s new management has made. 

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GameStop CEO George Sherman recently eliminated quarterly dividend payments in an attempt to make the company more financially stable. And GME  needs all the financial stability it can get right now. GME stock  has tumbled 70% over the last year and recently, GameStop stock hit a 52-week low of $3.15 per share. 

Sherman insisted that he has a plan to turn the company around. But investors likely have very low expectations for GME. Listed below are three things they will be looking to see.

Increased Video-Game Sales

GameStop is the world’s largest video-game retailer and has over 5,700 stores worldwide. But the company’s same-store sales continue to fall as more customers buy games online.

During the first quarter, the company’s total sales fell 13% from a year earlier, and its same-store sales sank 10%. Overall, GME missed analysts’ average forecasts nearly across the board, and GME stock nosedived by 18% as a result.

To appease investors, GME will need to show that it regained some kind of momentum in Q2. Fortunately, even modest progress could go a long way. 

An Improvement in GME’s Gross Margins

The company has taken several steps to reduce its debt and improve its gross  margins in recent months. Specifically, GME sold its Spring Mobile division for $700 million, it cut costs, laid off employees, and reduced its in-store discounts. 

These efforts will lower GameStop’s profitability, but they could be worthwhile  in the short-term if its margins improve. Investors will be looking to see how much these efforts paid off in Q2. They’ll also be looking to see what GME does with any increases in its cash flow. 

Signs GME  Is Changing With the Market

And finally, investors will be looking to see how GameStop is changing its business practices to fit the changing marketplace. This is going to be the hardest thing for GME to demonstrate, but it’s also the most important aspect of the company’s results. 

Sherman outlined his “Reboot” plan for the company in June, which consisted of the following three  points:

  • Reduce nonproduction expenses
  • Optimize the company’s existing business opportunities
  • Create additional revenue streams

Sherman noted  that the company is evaluating new concepts for its stores and building out its digital presence. If GameStop can show investors that it made any headway in these areas, then GME stock may rally in the future. 

As of this writing, Jamie Johnson did not hold a position in any of the aforementioned stocks. 

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