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GameStop Stock Surges After RC Ventures Acquires Stake

Zacks Equity Research
·3 mins read

GameStop Corp.’s GME shares exhibited strength and jumped roughly 24% on Aug 31 on reports stating that Ryan Cohen’s RC Ventures, an investment company, bought stake in the video-game retailer. Per GameStop’s latest filing yesterday, RC Ventures has a 9.6% stake in the company with about 6,215,326 shares. In an earlier filing on Aug 28, the company notified that RC Ventures acquired a 9% stake, equivalent to 5,80,000 shares. Ryan Cohen is the co-founder of Chewy, Inc. CHWY, the online retailer of pet food and pet-related products.

Per sources, the beleaguered retailer GameStop has been suffering from the video-game industry’s shift to online distribution. The coronavirus outbreak has further hit this Zacks Rank #4 (Sell) company’s performance, evident from a dismal first-quarter fiscal 2020. Apart from reporting loss per share in the quarter, the company continued to grapple with soft top-line performance. Consolidated comparable-store sales fell 17% excluding stores that were closed during the quarter as a result of the pandemic. Including the impact of stores, the metric plunged approximately 30%. On its last earnings call, management cautioned that challenges encountered in the first quarter are likely to persist in the second quarter.

We expect the Grapevine, TX-based company to report a year-over-year decline in top and bottom lines for second quarter fiscal of 2020, scheduled for release on Sep 9 after market close. In fact, the Zacks Consensus Estimate for fiscal second quarter currently stands at a loss of $1.27, indicating a decline from loss of 32 cents reported in the year-ago quarter. The consensus estimate for quarterly sales of $937.5 million also suggests a decline of more than 27% from the prior-year quarter’s reported figure.

Can Strategic Efforts Offer Respite?

While aforementioned factors make us apprehensive about the near term, GameStop is undertaking strategic endeavors to bring the company back on track. These involve cost-containment efforts, inventory optimization, focus on high-margin product categories and rationalization of store bases worldwide.

Amid these trying times, GameStop is focused on omni-channel capabilities with curbside pickup like other major retailers. The company intends to allocate resources in high-value strategic projects that can produce sturdy cash flow. Further, it remains poised to capitalize on the likely increase in hardware and software sales courtesy of the introduction of several new software titles and next-generation consoles later in the year.


 

Including the recent jump in shares, the stock has rallied 59.8% over the past three months and outperformed the industry’s 36.9% growth.

Better-Ranked Stocks in Retail

Target TGT has an expected long-term earnings growth rate of 7.2% and currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

SpartanNash SPTN, also a Zacks Rank #1 stock, delivered an average earnings surprise of 21.5% in the past four quarters.

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