GameStop Powers Down on Disappointing 4th-Quarter Earnings Report, Possible Secondary Offering

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GuruFocus.com
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- By Sydnee Gatewood

Over a month after its Reddit-fueled short squeeze, GameStop Corp. (NYSE:GME) reported its results for fourth-quarter and full-year 2020 after the closing bell on Tuesday.

For the quarter ended Jan. 30, the Grapevine, Texas-based video game retailer posted adjusted earnings of $1.34 per share, missing Refinitiv's estimates by a hair. Revenue declined from the prior-year quarter to $2.12 billion, which also fell short of expectations of $2.21 billion. Despite the decline, same-store sales grew 6.5% on the back of a strong holiday season.


For the full year, GameStop recorded an adjusted loss of $2.14 per share on $5.09 billion in sales. Comparable store sales decreased 9.5%.

GameStop Powers Down on Disappointing 4th-Quarter Earnings Report, Possible Secondary Offering
GameStop Powers Down on Disappointing 4th-Quarter Earnings Report, Possible Secondary Offering

GameStop also reported strong e-commerce sales, which jumped 175% during the quarter and accounted for more than a third of its revenue. For the full year, online sales grew 191%.

In a statement, CEO George Sherman praised GameStop's employees for working together over the past year "to adapt to the challenging pandemic environment, effectively serve our customers' demand for gaming and entertainment products, and navigate through the year with strong liquidity and a strengthened balance sheet."

He also revealed that in addition to reducing selling, general and administrative expenses by $92.6 million, the company is off to a strong start to 2021 since comparable store sales increased 23% in February as a result of strong hardware sales worldwide.

Due to the ongoing Covid-19 pandemic, GameStop said it is still suspending its guidance for 2021, but will concentrate on updating its fulfillment operations to boost the speed of its delivery and services.

"As we look ahead, we are excited by the opportunities that are in front of us as we begin prioritizing long-term digital and E-Commerce initiatives while continuing to execute on our core business during this emerging console cycle," Sherman said. "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."

The retailer also provided an update on its strategic transformation to become a "customer-obsessed technology company that delights gamers," which include investing in technology capabilities, improving the customer experience, expanding product offerings, modernizing its fulfillment operations, establishing U.S.-based customer care operations and leveraging its digital assets.

The appointment of Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) veteran Jenna Owens as chief operating officer was also revealed. She is the latest addition to a string of specialists GameStop has brought on board, having previously appointed Chewy (NYSE:CHWY) co-founder Ryan Cohen, along with Alan Attal and Jim Grube, to its board of directors.

Sherman noted their backgrounds in "corporate finance, E-Commerce and technology" will help "accelerate" the company's transformation as they are now part of a "strategy-focused committee" to identify initiatives that will improve its operations.

Investors were disappointed, however, when management declined to disclose further transformation details during the earnings call. That, along with a potential share sale, led the stock to decline nearly 20% on Wednesday morning.

The stock hit a high of $483 in January on the back of an epic short squeeze that was promoted by a group of retail investors on the social media platform Reddit. With a $10.27 billion market cap, shares of GameStop were trading around $145.83 on Wednesday. Although it is down from its peak, GuruFocus estimates the stock has climbed over 500% year to date.

GameStop Powers Down on Disappointing 4th-Quarter Earnings Report, Possible Secondary Offering
GameStop Powers Down on Disappointing 4th-Quarter Earnings Report, Possible Secondary Offering

Disclosure: No positions.

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This article first appeared on GuruFocus.

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