GME stock is down 65% this year after a torrid few months for the video retailer. GameStop Corp’s (NYSE:GME) attempt to move from the physical video game retailing model backfired, and efforts to sell the company also fell flat.
Investors are eagerly waiting for the Q2 report on September 10, but expectations are very low. Probabilities seem inclined towards the company’s underperforming targets instead of surprising Wall Street with positive news.
GameStop Looks to Stabilize the Business
Following the sale of the Spring Mobile segment, which largely accounted for its consumer tech business, GameStop’s growth avenues appear limited. Now the focus areas are the new video game software and hardware as well as pre-owned games. In the first quarter, these segments dipped due to negative trends that are the shift to digital game purchases and an underwhelming game release calendar.
In the first quarter, the issues led to a 20% decline in the pre-owned game segment as well as a 35% and 4% drop in hardware and software sales respectively. Investors will be looking forward to the Q2 results to see whether the sales are weakening beyond the 105 recorded in Q1.
However, at the time of writing, GME stock is up as much as 12% at $4.82.
Change of Strategy to Turn Profits
In the last few months, the company has aggressively taken steps to improve its earnings profile. That is if the core business stops shrinking, or it returns to growth. GameStop has cut costs and reduced promotions across many of its product categories. The move paid off, and in Q1, there was a higher gross profit margin.
It will be interesting to see whether the strategy will continue boosting margins without affecting market share. However, if the company changes gear, then it will demonstrate that it has lost control of its growth path.
The management currently has access to a lot of resources thanks to the selloff of a large part of the business and decision to suspend dividends. Investors will be keen to see how the company uses the capital and whether it will yield decent returns in the long term.
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