GameStop Slides Over 33% Following Weak Earnings Report

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Principal Points

• GameStop releases weaker-than-expected fourth-quarter results
• The company plans to accelerate its transformation throughout the year

GameStop, the roller-coaster stock that shot up more than 1,900% in January and then fell 90% the next month, published its quarterly earnings report on Tuesday in the after-hours. The quarterly report showed disappointing results for the three months leading up to January 30, 2021. The lower-than-expected sales arrived at $2.12bn, compared with $2.19bn in the fiscal 2019 fourth quarter. The drop was “a result of temporary store closures in response to the COVID-19 pandemic,” the company said.

Net income landed at $80.5mn, compared with $21mn in the year-ago quarter. The company earned $90.7mn, or $1.34 a share on an adjusted basis, compared with $1.27 a share a year ago. Earnings per share turned out to be one penny shy of the expected adjusted earnings of $1.35 a share on sales of $2.21bn. The videogame retailer said same-store sales rose 6.5% in the fourth quarter, while global e-commerce sales rose 175% for the quarter and 191% for the fiscal year. The company ended the fiscal 2020 with $635mn in cash, which has “strengthened the balance sheet” and has provided “strong liquidity”. 

GameStop pledged to accelerate its transformation by onboarding several new directors with backgrounds in corporate finance, e-commerce and technology. In the process of “actively pursuing” senior talent, GameStop announced it has appointed a former Amazon and Google executive, Jenna Owens, as the new operating chief. The new executive will join Ryan Cohen, GameStop’s largest shareholder and co-founder of Chewy.com. Together with the rest of the senior management team, they will lead the company through the digital transformation that will be among the top priorities for 2021. 

Shrinking Company After Skyrocketing Rally

Following the release, GameStop shares rallied by more than 8% in the extended session on Tuesday evening. Soon after, the stock sank and was trading around 15% to the downside before the regular trading hours on Wednesday. As soon as the session started, GameStop tumbled 20% and traded around $145. The stock was not able to recover from the heavy selling wave and ended the session at $120.34 down 33.79% on the day.

George Sherman, CEO of GameStop, said the company was “off to a strong start” in 2021, “as February comparable store sales increased 23%, led by continued strength in global hardware sales.” Mr Sherman also provided some outlook for the company: “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,” he said.

The quarterly report was the first chance for investors to take a look at GameStop’s fundamentals and growth outlook following the trading frenzy two months earlier. The report did not provide any formal guidance or growth projections as it did not cite expected future results, including estimates. “The Company is continuing to suspend guidance at this time,” the report mentioned. It also did not unveil a more detailed transformation process, except that the company plans to sell additional equity shares to fund its transformation.

The latest results showed that the retailer continues to shrink even after it caught the attention of Wall Street, regulators and the retail trading community. Year-to-date, GameStop stock has increased in price by more than 700%. In comparison, the S&P500 is up by 6.30% for the same period. GameStop shares hit a record high of $483 in late January as the stock received a meteoric boost by Reddit traders. From the peak to the current market price, the stock marks a 75% decline.