Why Is GameStop (GME) Up 0.6% Since Last Earnings Report?

It has been about a month since the last earnings report for GameStop (GME). Shares have added about 0.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is GameStop due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

GameStop Posts Narrower-Than-Expected Q2 Loss

GameStop posted a narrower-than-expected second-quarter fiscal 2022 loss. The company also announced its partnership with FTX US, one of the largest cryptocurrency exchanges.

That being said, the bottom line deteriorated from the year-ago quarter’s reported loss. The beleaguered video-game retailer’s fiscal second-quarter top line declined year over year and missed the Zacks Consensus Estimate.

GameStop has been undertaking initiatives to diversify the business and become a technology-driven organization. The Grapevine, TX-based company launched its non-fungible token (NFT) marketplace to aid gamers, creators, collectors and others in buying, selling and trading NFTs. Management modernized and strengthened its systems via the implementation of SAP.

Q2 in Details

GameStop posted an adjusted loss of 35 cents per share in second-quarter fiscal 2022, narrower than the Zacks Consensus Estimate of a loss of 38 cents. In the year-ago quarter, the company had reported an adjusted loss of 19 cents a share.

The company reported net sales of $1,136 million, which missed the Zacks Consensus Estimate of $1,254.7 million. The metric declined from $1,183.4 million reported in the year-ago quarter. Management highlighted that sales attributable to new and expanded brand relationships remained solid in the quarter.

By sales mix, hardware and accessories sales declined to $596.4 million from $609.6 million reported in the year-ago quarter. Software sales came in at $316.4 million, down from $396.6 million posted in the prior-year quarter. Sales in the collectibles unit amounted to $223.2 million compared with $177.2 million reported in the year-ago quarter.

Margins

Gross profit declined to $282.2 million from $320.9 million posted in the year-ago quarter, while gross margin contracted to 24.8% from 27.1%.

Adjusted SG&A expenses stood at $388.4 million, up from $372.3 million reported in the year-ago quarter.

The company’s adjusted operating loss was $106.2 million in the reported quarter. It had reported an adjusted operating loss of $51.4 million in the prior-year period. Adjusted EBIDTA loss was $78.1 million compared with adjusted EBIDTA loss of $29.5 million in the prior-year quarter.

New Development

The company unveiled its partnership with FTX US (FTX), which is aimed at introducing more GameStop customers to FTX’s community and marketplaces. GameStop is partnering with FTX on new e-commerce and online marketing efforts. It will also start carrying FTX gift cards across select stores.

Other Financial Aspects

GameStop ended the quarter with cash and cash equivalents of $908.9 million, net long-term debt of $32.1 million and stockholders’ equity of $1,343.5 million. Inventory was $734.8 million at the end of the reported quarter compared with $596.4 million at the close of the same quarter last year. The company maintains enough in-stock levels to meet customer demand and mitigate supply chain challenges.

During the second quarter, cash flow from operations was an outflow of $103.4 million, compared with an outflow of $11.5 million during the same period last year. Capital expenditures in the quarter amounted to $20.5 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted 25.64% due to these changes.

VGM Scores

At this time, GameStop has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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