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A month has gone by since the last earnings report for GameStop (GME). Shares have lost about 8.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is GameStop due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
GameStop Posts Wider-Than-Expected Q1 Loss, Sales Beat
It seems that GameStop Corp.’s effort to turn its fate around will take some more time, as the company reported another quarter of loss. The beleaguered video-game retailer posted a wider-than-expected loss in the first quarter of fiscal 2022. Also, the loss widened from the year-ago period.
However, focus on expanding product selection, improving delivery speeds, and enhancing in-store and online shopping experience helped post decent top-line number that not only beat the Zacks Consensus Estimate but also improved year over year.
GameStop has been taking initiatives to diversify business and become a technology-driven organization. The company has been pursuing growth opportunities in cryptocurrency, non-fungible tokens (NFTs) and Web 3 gaming verticals.
The Grapevine, TX-based company recently launched a digital asset wallet to allow gamers and others to store, send, receive and use cryptocurrencies and NFTs across decentralized apps without leaving their web browsers. The digital wallet will facilitate transactions on GameStop’s NFT marketplace, expected to be launched in the second quarter.
Q1 in Details
GameStop posted an adjusted loss of $2.08 per share in first-quarter fiscal 2022, wider than the Zacks Consensus Estimate of a loss of $1.37. In the year-ago quarter, the company had reported adjusted loss of 45 cents a share.
The company reported net sales of $1,378.4 million, which surpassed the Zacks Consensus Estimate of $1,353 million. The metric rose 8% year over year. Management highlighted that new and expanded brand relationships contributed to the company's growth.
By sales mix, hardware and accessories sales declined 4.2% to $673.8 million. Software sales grew 21.6% to $483.7 million, while collectibles sales surged 25.9% to $220.9 million.
Gross profit decreased 9.6% year over year to $298.5 million, while gross margin contracted 420 basis points (bps) to 21.7%.
Adjusted SG&A expenses jumped 28.6% to $452.2 million during the quarter. As a percentage of net sales, adjusted SG&A expenses increased 530 bps to 32.8% during the quarter under review from 27.5% in the year-ago period.
The company’s adjusted operating loss was $153.7 million in the reported quarter. It had reported adjusted operating loss of $21.6 million in the prior-year period. Adjusted EBIDTA loss was $125.5 million compared with adjusted EBIDTA loss of $0.7 million in the prior-year quarter.
Other Financial Aspects
GameStop ended the quarter with cash and cash equivalents of $1,035 million, restricted cash of $33.3 million and stockholders’ equity of $1,450.7 million. Inventory was $917.6 million at the end of the reported quarter compared with $570.9 million at the close of the prior year. The company is maintaining high inventory to meet increased customer demand and mitigate supply chain challenges.
During the first quarter, cash flow from operations was an outflow of $303.9 million, compared with an outflow of $18.8 million during the same period last year. Capital expenditures in the quarter amounted to $10.8 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a flat trend in fresh estimates.
The consensus estimate has shifted -10.51% due to these changes.
At this time, GameStop has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
GameStop has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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