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GameStop (GME) Posts Breakeven Earnings & Sales Miss in Q3

GameStop Corp. GME posted mixed third-quarter fiscal 2023 results, delivering breakeven earnings per share and lower-than-expected revenues. While the top line declined year over year, the bottom line compared favorably with the year-ago quarter’s reported figure. Higher inflationary pressures on consumers’ spending in the gaming industry have been resulting in lower demand and in turn, weighing on the company’s results.

The video game retailer’s shares have fallen around 6% during after-hours trading on Dec 6, on soft sales results. Shares of this Zacks Rank #3 (Hold) company have fallen 14.3% in the past three months compared with the industry’s 2.3% drop.

Q3 in Details

GameStop posted breakeven earnings per share in third-quarter fiscal 2023 compared with the Zacks Consensus Estimate of a loss of 12 cents per share. The company had incurred an adjusted loss per share of 31 cents in the prior year quarter.

GME reported net sales of $1,078 million, which missed the consensus estimate of $1,159 million. Also, the metric decreased 9.1% from $1,186.4 million reported in the year-ago fiscal quarter. Lower sales across all the categories contributed to soft sales.

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By sales mix, hardware and accessories sales fell to $579.4 million from $627 million reported in the year-ago quarter. Software sales were $321.3 million, down from $352.1 million in the year-ago quarter. Sales in the collectibles unit amounted to $177.6 million compared with $207.3 million reported in the year-ago quarter.

Margins

Gross profit decreased to $281.8 million from $291.6 million in the year-ago fiscal quarter. Adjusted selling, general and administrative (SG&A) expenses declined to $294.9 million from $386.6 million reported in the year-ago quarter. As a percentage of net sales, SG&A expenses were 27.5%, down from 32.7% reported in the year-ago period.

The company’s adjusted operating loss was $13.1 million in the reported quarter. It had reported an adjusted operating loss of $95 million in the prior-year fiscal period. Adjusted EBITDA was $5.1 million against an adjusted EBITDA loss of $66.6 million in the prior-year quarter.

Other Financial Aspects

GameStop ended the third quarter with cash and cash equivalents of $909 million, net long-term debt of $20 million and stockholders’ equity of $1,262.8 million. Inventory was $1,021.3 million at the end of the reported quarter compared with $1,131.3 million at the close of the same quarter last year. This reflects the company’s ongoing focus on maintaining a healthy inventory position.

During the 39-week period that ended Oct 28, 2023, the company used cash flow from operations of $192.7 million against an outflow of $230 million during the same period last year. Free cash flow during the same period was a negative $219.9 million. Capital expenditures in the 39 weeks amounted to $27.2 million.

Key Picks

We have highlighted three better-ranked stocks, namely Abercrombie & Fitch ANF, American Eagle Outfitters AEO and Boot Barn BOOT.

Abercrombie & Fitch, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings per share (EPS) suggests growth of 0.5% and 526.3%, respectively, from the year-ago reported figures. ANF delivered an earnings surprise of 107.7% in the last reported quarter.

American Eagle Outfitters, a retailer of casual apparel, accessories and footwear, currently sports a Zacks Rank of 1. AEO delivered an earnings surprise of 82.6% in the last reported quarter.

The Zacks Consensus Estimate for American Eagle Outfitters’ current financial-year sales and EPS suggests growth of 3.3% and 24.2%, respectively, from the year-ago reported figures.

Boot Barn, a fashion retailer of apparel and accessories, currently carries a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 8.2% and 9.1%, respectively, from the year-ago reported figures.

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