GameStop Corp. (NYSE:GME) Admits Challenging Times

GameStop Corp. (NYSE:GME)

GameStop Corp. (NYSE:GME) released earnings for FY 2016 and provided guidance for 2017. GME shares dropped on the news. GME shares closed at $24.09 yesterday and are trading in the pre-market down over 11% at $21.30 on low volume. Short selling represents a large portion of the stock’s float – over 24%. When considering the number of shares held short and GME’s average daily volume, that calculates a short ratio of 9.05.

GME Financials

Q4 results provided short-sellers with justification. In the released report, video game demand was characterized GameStop Corp. (NYSE:GME) as “weak”. Total sales dropped 13.6%. Q4 comparable sale were down 20% in the USA and 16.3% overall. New hardware sales declined 29.1% and new software sales were down 19%. Sales of pre-owned games were also down 6.7%. This was not a total surprise to the market though. In January GameStop Corp. (NYSE:GME) provided guidance on holiday sales. In that guidance, GameStop stated that holiday sales were impacted by heavily discounted hardware pricing accompanied with heavy promotion by competing retailers.

2017 Guidance

GameStop Corp. (NYSE:GME) anticipates closing some stores but also opening others. Globally the company is estimating that it will open 35 new Collectible stores and 65 new Technology Brand stores. However, the company also estimates that it will reduce its global retail footprint by 2% – 3%. It expects capital expenditures in the neighborhood of $110 – $120 million in order to execute that plan.

The CFO of GameStop Corp. (NYSE:GME), Rob Llloyd, commented that in the future the company will no longer provide quarterly guidance for EPS or same store sales. Guidance will be restricted to annual guidance. He claims this approach is being adopted in order to focus the firm’s attention on long term goals rather than short-term results.

Excluding the Tech Brand stores, guidance for 2017 total sales is a gain of 2% to a drop of 2%. The company expects operating margins between 6.5% and 7.0%. For 2017, GameStop is expecting diluted EPS to come in between $3.10 and $3.40.

GME Share Performance

EPS for GameStop Corp. (NYSE:GME) has trended positively since 2013 when the company reported and EPS loss of -$2.13. That number went positive the next year and trended upwards and in 2016 the EPS was $3.80. Sales have stagnated though. In 2013 GameStop reported sales of $8.89 billion. By 2016 sales had improved to only $9.36 billion. Shareholders have benefitted from GME shares being bought back though. In 2012 139.9 million shares of GME were outstanding. That number shrank to 106 million by 2016.

GME shares have a 52-week high of $31.87 and a 52-week low of $19.50. Analysts have a broad range of opinion on GME shares. Six rate GME as a “strong Buy”, one rates the shares as a “Buy”, three rate the shares as a “Hold”, and one rates GME as a “Sell”.

In 2013, GME shares hit their highs near $50. That year the stock began that year trading around $20. 2013 was also the last year that these share prices have seen current levels.

3/24/2017
Ticker Symbol GME
Last Price a/o 8:39 AM EST  $                    21.30
Average Volume                2,660,000
Market Cap (mlns)  $              2,440.00
Sales (mlns) $9,090.00
Shares Outstanding (mlns) 101.88
Share Float (mlns) 99.29
Shortable Yes
Optionable Yes
Inside Ownership 2.20%
Short Float 24.23%
Short Interest Ratio 9.05
Quarterly Return -6.85%
YTD Return -3.68%
Year Return -16.54%

I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 96 hours. All information, or data, is provided with no guarantees of accuracy.

About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading.

Author: Steve Clark

Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms.

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