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Bear of the Day: GameStop (GME)

Madeleine Johnson

GameStop Corp. (GME) is the world’s largest video game and entertainment software retailer. The company operates more than 5,800 stores across the U.S. and in fourteen countries worldwide. GameStop also sells new and used video game software, hardware and accessories for next generation video game systems from Sony (SNE), Nintendo (NTDOY), and Microsoft (MSFT). Additionally, the company sells PC entertainment software, related accessories and other merchandise.

Holiday Quarter Results Were Rough

Adjusted earnings of $1.45 per share missed the Zacks Consensus Estimate of $1.59 per share, mostly due to an asset impairment charge and other one-time items totaling $334.5 million.

Revenues of $3.06 billion also missed our consensus estimate and plunged 7.6% year-over-year, but comparable sales managed to pick up 1.4% thanks to two things: the timing of Call of Duty and a calendar shift.

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Despite that comps growth, sales in the majority of GME’s business segment’s declined. New software sales fell 7.8%, new hardware sales dropped 9.8%, and pre-owned sales plunged 21.3% year-over-year.

On top of these weak results was a weak outlook for GameStop’s fiscal 2019.

Comparable store sales are now expected to decline by 5% to 10%, and total sales are projected to decrease by the same percentage. GameStop did not give any earnings guidance, due to planned cost savings and a new CEO hire.

Falling Estimates

GameStop Corp. Price and Consensus

GameStop Corp. Price and Consensus | GameStop Corp. Quote

Analysts have since turned bearish on GameStop, with four cutting estimates in the last 60 days for the current fiscal year. Earnings are expected to decline roughly 27.5% for the year, and the Zacks Consensus Estimate has dropped 73 cents during that same time period from $2.28 to $1.55 per share.

This sentiment has stretched into 2021. Earnings could decline almost 12%, but our consensus estimate has dropped significantly in the past two months.

GME is now a Zacks Rank #5 (Strong Sell).

Shares of the video game retailer have fallen 19% since January. In comparison, the S&P 500 is up over 16% year-to-date.

Bottom Line

GameStop does plan to improve its annualized operating profit—hopefully by $100 million—as part of a new cost savings initiative. The company will focus on supply chain, operations, expense, and pricing efficiency.

But, things aren’t looking too bright for GME right now, as the cost cutting plan won’t likely benefit the retailer in 2019.

If you’re an investor interested in adding a consumer electronics stock to your portfolio, consider Best Buy (BBY). Shares of Zacks Rank #2 (Buy) BBY have gained over 46% since January; earnings are expected to grow 6% this fiscal year, with 9 analysts revising their estimates upwards in the last 60 days.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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Sony Corporation (SNE) : Free Stock Analysis Report
 
Nintendo Co. (NTDOY) : Free Stock Analysis Report
 
Microsoft Corporation (MSFT) : Free Stock Analysis Report
 
GameStop Corp. (GME) : Free Stock Analysis Report
 
Best Buy Co., Inc. (BBY) : Free Stock Analysis Report
 
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