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Category: Stock Market and Gamestop
Date: 13 September 2019 Stock Price: $4.58 We take a look at the 2nd quarter earnings release of their 2019 fiscal year of Gamestop, a speciality retail company specialising in amongst others video games, pop culture collectables, consumer electronics etc.
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About Gamestop
GameStop is a family of specialty retail brands and we are a global retailer of multichannel video game, pop culture collectibles, consumer electronics and wireless services, operating more than 5,800 stores in 14 countries across Europe, Canada, Australia and the United States.
GameStop is committed to delivering innovation to consumers anywhere, anytime and any way they want it. Whether looking for new or pre-owned, digital or physical video game titles, the latest in video game hardware or accessories or consumer electronics, gaming and technology enthusiasts are invited to discover and enjoy their favorite products in one of GameStop's welcoming retail environments.
Our buy-sell-trade program provides substantial value to customers looking to trade-in video game hardware and software, or smartphones and tablets they no longer use or play. Each year GameStop provides more than $1 billion in trade credits, with more than 70 percent of these trade dollars being applied toward the purchase of new products.
The company's global family of brands include GameStop; EB Games, Micromania, and Game Informer® magazine, ThinkGeek
The image below shows a Gamestop shop.
GameStop is committed to delivering innovation to consumers anywhere, anytime and any way they want it. Whether looking for new or pre-owned, digital or physical video game titles, the latest in video game hardware or accessories or consumer electronics, gaming and technology enthusiasts are invited to discover and enjoy their favorite products in one of GameStop's welcoming retail environments.
Our buy-sell-trade program provides substantial value to customers looking to trade-in video game hardware and software, or smartphones and tablets they no longer use or play. Each year GameStop provides more than $1 billion in trade credits, with more than 70 percent of these trade dollars being applied toward the purchase of new products.
The company's global family of brands include GameStop; EB Games, Micromania, and Game Informer® magazine, ThinkGeek
The image below shows a Gamestop shop.
Financial overview of Gamestop's latest earnings report
The numbers we are interested in (for the quarter):
- Sales: $1.285 billion (up from $1.501 billion from the same quarter of the previous year)
- Cost of sales: $886.6 million (down from $1.031 billion for the same quarter of the previous year)
- Net loss: -$415.3 million (down from $24.9 million for the same quarter of the previous year)
- Diluted earnings per share: -$4.15 (down from -$0.24 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 100 million (unchanged from 100 million for the same quarter of the previous year)
- Cash and cash equivalents: $424 million
- Cash and cash equivalents per share: $4.24
- Cash and cash equivalents makes up 92.6% of Gamestop's market capital
- Cash and cash equivalents makes up 14.14 % of Gamestop's total assets
- Accounts receivable: $122.4 million
- Accounts receivable makes up 4.09% of the Gamestop's total assets.
- Inventories: $948.9 million
- Inventories makes up 31.75% of Gamestop's total assets
- Inventories declined by -16.1% over the last 12 months. A good sign that either stock is moving fast or the group is managing their inventories better.
- Stockholders equity: $809.7 million
- Stockholders equity per share: $8.097
- Gamestop is trading at 0.57 times its stockholders equity per share
- It is unusual for a stock to trade below its shareholders equity. If Gamestop where to sell all their assets, pay all their liabilities and distribute what is left over to stockholders, stockholders will receive $8.09 per stock, which is well above the group's current stock price
Gamestop's management commentary on the results and earnings guidance
GRAPEVINE, Texas, Sept. 10, 2019 (GLOBE NEWSWIRE) -- GameStop Corp. (NYSE: GME), today reported sales and earnings for the second quarter ended August 3, 2019. The company also introduced the core tenets of its GameStop Reboot strategic plan for the future.
George Sherman, GameStop’s chief executive officer said, “We are committed to acting with a sense of urgency to address the areas of the business that are critical to achieving long-term success and value creation for all our stakeholders. We will set GameStop on the correct strategic path and fully leverage our unique position and brand in the video game industry. Our strategic plan is anchored on four tenets which include, optimizing the core business by driving efficiency and effectiveness, creating the social and cultural hub of gaming within each GameStop, building compelling digital capabilities, and transforming our vendor and partner relationships for an evolving video game industry. This is a compelling new strategic vision for the company, and we’ve already started to execute against all four pillars. We also remain committed to returning capital to shareholders and balancing that opportunity against the need to maintain a strong balance sheet to properly run our business and invest in responsible growth.”
GameStop Reboot - Strategic Update
As part of its go-forward plans, the company’s leadership outlined a strategy to improve the financial performance of the business and implement a series of initiatives that will support the long-term success of the business and value creation for stakeholders.
The four pillars to the strategic plan include:
Capital Allocation Update
On July 10, 2019, GameStop completed a modified Dutch auction tender offer to purchase 12,000,000 shares of its common stock at $5.20 per share for an aggregate cost of $62.4 million, excluding fees and expenses. The company is committed to returning excess capital to shareholders as appropriate and currently has approximately $237 million remaining under the existing share repurchase authorization. During the quarter, the company reduced its outstanding debt by $49.8 million, bringing the year-to-date reduction in debt to $401.7 million with $419.1 million of long-term debt remaining on the balance sheet at quarter end.
2019 Outlook
As previously announced, GameStop is currently implementing a cost-savings and operating profit improvement initiative designed to strengthen the organization for the future and support long-term improved financial performance and profitability, which include supply chain efficiencies, operational improvements, expense savings and pricing and promotion optimization. The company now expects to achieve annualized operating profit improvement in excess of $200 million, an increase from its initial estimate of approximately $100 million.
The company is providing the following guidance for full fiscal year 2019:
George Sherman, GameStop’s chief executive officer said, “We are committed to acting with a sense of urgency to address the areas of the business that are critical to achieving long-term success and value creation for all our stakeholders. We will set GameStop on the correct strategic path and fully leverage our unique position and brand in the video game industry. Our strategic plan is anchored on four tenets which include, optimizing the core business by driving efficiency and effectiveness, creating the social and cultural hub of gaming within each GameStop, building compelling digital capabilities, and transforming our vendor and partner relationships for an evolving video game industry. This is a compelling new strategic vision for the company, and we’ve already started to execute against all four pillars. We also remain committed to returning capital to shareholders and balancing that opportunity against the need to maintain a strong balance sheet to properly run our business and invest in responsible growth.”
GameStop Reboot - Strategic Update
As part of its go-forward plans, the company’s leadership outlined a strategy to improve the financial performance of the business and implement a series of initiatives that will support the long-term success of the business and value creation for stakeholders.
The four pillars to the strategic plan include:
- Optimize the Core: Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base.
- Become the Social / Cultural Hub for Gaming: Create the social and cultural hub of gaming across the GameStop platform by testing and improving existing core assets including the store experience, knowledgeable associates and the PowerUp Rewards loyalty program.
- Build Digital Platform: Build compelling digital capabilities, including the recent relaunch of GameStop.com, to reach customers more broadly across the omni-channel platform and give them the full spectrum of content and access to products they desire.
- Transform Vendor Partnerships: Transform our vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.
Capital Allocation Update
On July 10, 2019, GameStop completed a modified Dutch auction tender offer to purchase 12,000,000 shares of its common stock at $5.20 per share for an aggregate cost of $62.4 million, excluding fees and expenses. The company is committed to returning excess capital to shareholders as appropriate and currently has approximately $237 million remaining under the existing share repurchase authorization. During the quarter, the company reduced its outstanding debt by $49.8 million, bringing the year-to-date reduction in debt to $401.7 million with $419.1 million of long-term debt remaining on the balance sheet at quarter end.
2019 Outlook
As previously announced, GameStop is currently implementing a cost-savings and operating profit improvement initiative designed to strengthen the organization for the future and support long-term improved financial performance and profitability, which include supply chain efficiencies, operational improvements, expense savings and pricing and promotion optimization. The company now expects to achieve annualized operating profit improvement in excess of $200 million, an increase from its initial estimate of approximately $100 million.
The company is providing the following guidance for full fiscal year 2019:
- Comparable Store Sales: A decline in the low-teens
- Adjusted (Non-GAAP) Income Tax Rate*Approximately 27%
- Adjusted (Non-GAAP) Earnings Per Share (diluted)*$1.15 to $1.30
- Capital Expenditures$90 million to $95 million
Gamestop (NYSE: GME) stock price history
The image below, obtained from Google, shows the stock price history of Gamestop over the last 5 years. And its been a shocking time for Gamestop stockholders. 5 years ago Gamestop stock was trading at around $43.30 a stock and its currently trading at $4.58. That's a shocking loss of -89% for Gamestop stockholders over the last 5 years. Adding salt into Gamestop stockholders wounds, the stock is trading at a lot closer to its 52 week low of $3.15 than it is to its 52 week high of $17.04. A clear indication that short term sentiment and momentum of Gamestop being overwhelmingly negative.
Recent coverage of Gamestop
The extract below touches on the latest news regarding Gamestop as obtained from Zacks.
GameStop (GME - Free Report) shares have been sliding after the video game retailer reported disappointing Q2 earnings after the closing bell on Tuesday. GME is trading down about 1.4% on Thursday, but plunged almost 10% Wednesday. Year-to-date, the stock has plummeted over 64%. The company’s weak Q2 performance follows its decision to eliminate its quarterly dividend payments back in Q1. GameStop is in the middle of a reinvention, choosing to prioritize its balance sheet in order to avoid a J.C. Penney (JCP - Free Report) type mishap. GameStop is looking to revitalize itself from the ground up, but this most recent quarter didn’t show much promise about a comeback. What can the company do to bring back the glory days?
How GameStop Can Revive Its Business
GameStop needs to make some major changes if it wants to survive the onslaught of the digital marketplace, and the impact it has had on traditional brick and mortar shops. The company’s sales have steadily declined due to gamers turning to digital storefronts for their games. Microsoft’s (MSFT - Free Report) Xbox Game Pass and Sony’s (SNE - Free Report) PS Now also must be addressed by GameStop. The former gaming hub must adapt its old-fashioned stores to what the modern gaming consumer wants to see in shops; the company could consider outfitting its shops for esports enthusiasts, monetizing its collectible items, and revamping its loyalty program in a way that caters to digital purchases.
Over the past few years, esports has taken the world by storm; it’s especially popular with people between the ages of 18-34. In 2019, it was estimated that the total audience of esports would grow to 454 million viewers and revenue would increase to over $1 billion. One way GameStop could easily attract more competitive gamers, as well as increase store traffic, is to expand their presence in esports.
Successfully bringing in esports enthusiasts would, in turn, bring their follower counts on their YouTube (GOOGL - Free Report) or Twitch (AMZN - Free Report) accounts, which are central to the growth and promotion of esports. GameStop could potentially hold amateur to semi pro tournaments for eager players looking to test their gaming skills. The excitement of playing for some type of prize and bragging rights should be enough to entice participation.
The company should also look to capitalize on the only growing segment of its business: its collectible items. For example, Minecraft is the best-selling video game of all time, and is extremely popular with kids between 6-13 years old. GameStop, which offers collectible items from the game like torches, pick axes, and the coveted diamond sword has benefited from the demand. Young kids and older consumers alike enjoy collectible video game items, and GameStop should focus on capitalizing on this demand. Focusing on offering unique collectible items that would appeal to young and older consumers could help increase store traffic as well. GameStop stores look the same as they did 15 years ago, and restructuring its stores to better appeal to what gets modern consumers in the door will be key going forward.
Read the full article here.
GameStop (GME - Free Report) shares have been sliding after the video game retailer reported disappointing Q2 earnings after the closing bell on Tuesday. GME is trading down about 1.4% on Thursday, but plunged almost 10% Wednesday. Year-to-date, the stock has plummeted over 64%. The company’s weak Q2 performance follows its decision to eliminate its quarterly dividend payments back in Q1. GameStop is in the middle of a reinvention, choosing to prioritize its balance sheet in order to avoid a J.C. Penney (JCP - Free Report) type mishap. GameStop is looking to revitalize itself from the ground up, but this most recent quarter didn’t show much promise about a comeback. What can the company do to bring back the glory days?
How GameStop Can Revive Its Business
GameStop needs to make some major changes if it wants to survive the onslaught of the digital marketplace, and the impact it has had on traditional brick and mortar shops. The company’s sales have steadily declined due to gamers turning to digital storefronts for their games. Microsoft’s (MSFT - Free Report) Xbox Game Pass and Sony’s (SNE - Free Report) PS Now also must be addressed by GameStop. The former gaming hub must adapt its old-fashioned stores to what the modern gaming consumer wants to see in shops; the company could consider outfitting its shops for esports enthusiasts, monetizing its collectible items, and revamping its loyalty program in a way that caters to digital purchases.
Over the past few years, esports has taken the world by storm; it’s especially popular with people between the ages of 18-34. In 2019, it was estimated that the total audience of esports would grow to 454 million viewers and revenue would increase to over $1 billion. One way GameStop could easily attract more competitive gamers, as well as increase store traffic, is to expand their presence in esports.
Successfully bringing in esports enthusiasts would, in turn, bring their follower counts on their YouTube (GOOGL - Free Report) or Twitch (AMZN - Free Report) accounts, which are central to the growth and promotion of esports. GameStop could potentially hold amateur to semi pro tournaments for eager players looking to test their gaming skills. The excitement of playing for some type of prize and bragging rights should be enough to entice participation.
The company should also look to capitalize on the only growing segment of its business: its collectible items. For example, Minecraft is the best-selling video game of all time, and is extremely popular with kids between 6-13 years old. GameStop, which offers collectible items from the game like torches, pick axes, and the coveted diamond sword has benefited from the demand. Young kids and older consumers alike enjoy collectible video game items, and GameStop should focus on capitalizing on this demand. Focusing on offering unique collectible items that would appeal to young and older consumers could help increase store traffic as well. GameStop stores look the same as they did 15 years ago, and restructuring its stores to better appeal to what gets modern consumers in the door will be key going forward.
Read the full article here.
Gamestop (NYSE: GME) latest stock valuation
So based on Gamestop's latest earnings report and their outlook is the market justified in its continued punishment of Gamestop stock? The answer is yes. The group keeps bleeding money and the losses are getting bigger, and we are not sure the plans put in place is enough to save the group from their continued financial woes. It is hard to value a loss making stock using traditional models such as discounted cash flow or dividend discount models. When these models cannot be used we tend to use stockholders equity per share as the base for our valuation. Our value we place on the stock of Gamestop is therefore $8.09. But we caution investors against investing in a stock when the trend and momentum and sentiment towards a stock is so overwhelmingly negative. We would not advise buying into the stock even though our valuation is well above the current stock price. If the group keeps bleeding money the stockholders equity per share will start declining too as they sell assets and burn cash to stay afloat. Our recommendation is therefore Avoid.