GME Stock in Focus Ahead of Q1 Earnings: GameStop Faltering

GME stock

GME stock is trading lower ahead of GameStop Corp’s (NYSE:GME) first-quarter results.

GameStop Corp has had to deal with declining sales in the past year, which the retailer’s diversification strategy could not offset. However, that could change as the new CEO is likely to come up with a new strategy to turn things around. The first step will be seen in the Q1 results that are scheduled to be released on Tuesday, June 4, 2019.

Sales Declined in 2018

GameStop’s revenue trends do not look that bad considering that comparable-store sales in 2018 were flat while in the last five fiscal years there has been growth. The retailer’s core business segment, which is the hardware and pre-owned software offerings, are fading, and in the holiday quarter, it dropped 21%. There is a healthy demand for the company’s collectibles and accessories, but these are not generating repeat customer traffic like the buy-sell-trade model does.

The company has projected that comparable store sales are likely to decline between 5% and 10% in FY2019, which will be its worst result since 2016 when revenue was affected by its movement to the next-generation console. This could be bad news for GME stock.

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Growth areas such as new video hardware, accessories, and collectibles are not delivering the same profitability as the pre-owned software business. Last year the company reported an 8.5% profit margin from products like gaming consoles relative to close to 40% on used games. Overall gross profit margin last year dropped 28% as a result of moving from the pre-owned software business.

GME stock is down 1%  and now selling for $7.51.

New CEO Could Bring a New Business Strategy

Over the past year, the company has been operating temporary management, and with new CEO George Sharman, shareholders are optimistic that he will articulate a new strategy that can return the business to profitability.

Although the CEO will have the foothold to make a number of changes like brand divestments, store closures, and restructuring, this can only support short-term profitability as it remains to be seen whether the business will move for the negative business trends witnessed last year.

GME stock has underperformed the broader market so far in 2019 and lost almost 45%.

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