GME stock plunged 20% on Wednesday after GameStop Corp. (NYSE:GME) announced uninspiring Q3 2019 earnings results. The company slashed its full-year profit guidance as it continues to grapple with delays in the purchase of consoles ahead of new launches.
Weak Q3 Results
The video game retailer saw its YoY sales drop 25.7% in the quarter to $1.4 billion, with net losses being $40.2 million minus a $43 million noncash impairment charge. The decline in sales was worse than the 13.4% decline predicted by analysts. Equally, the company has slashed its FY earnings per share guidance from the previous range of $1.15 to $1.30 down to just between $0.10 and $0.20.
The company saw its hardware and pre-owned sales continue to fall due to the Xbox One and PlayStation 4 coming to an end of their life cycles. New hardware and software sales also plummeted 43.4% and 32.6%, respectively, as a result of a softer fall lineup compared to last year. However, the company reported growth in the Nintendo Switch game, but that was not enough to offset the drop in its other two main products.
GME stock is trading lower by 19.98% at $5.21.
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GameStop Buys Back Stock
Early this year, the company abandoned plans of selling itself after it failed to get a buyer. With the company performing dismally, the management chose to buy back around 22.6 million shares at $5.11 a share for $115.7 million. There have been more share buybacks this year, which has brought the company’s total shares bought back to 34.6 million at an average price of $5.14 a share. At the end of the quarter, only around 67.8 million outstanding shares remained down 34% on the year.
This is a significant move because the management understands that buying the shares below book value is more value accretive than diversifying. Also, retiring 34% of the shares in a single year is a big vote of confidence for a company that has been struggling. Since buybacks work when stocks are undervalued, this could work for GameStop considering the low valuation of its stock at the beginning of the quarter.
GME stock has tumbled about 60% since the beginning of 2019.
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