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GameStop Misses Q1 Earnings Expectations, Stock Falls

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GameStop (NYSE:GME) stock fell close to 6% in extended trading on Tuesday. The video game retailer posted its earnings for the first quarter of fiscal 2020, which ended May 2, after the markets closed on Tuesday. The company reported lower-than-expected earnings results in the first quarter. GameStop’s revenue and earnings missed analysts’ consensus estimates.

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GameStop’s Q1 earnings results

In the first quarter, GameStop reported an adjusted EPS of -$1.61 compared to $0.07 in the first quarter of fiscal 2019. The earnings missed analysts’ consensus estimate of -$1.27 per share. Meanwhile, the company generated sales of $1.02 billion—a reduction of 34.0% from the first quarter of fiscal 2019. The company missed analysts’ consensus revenue expectation of $1.07 billion. GameStop’s e-commerce sales rose 519% compared to the same period last year. Meanwhile, the comparable-store sales fell by 17% in the first quarter, excluding stores closed due to COVID-19.

In the first-quarter earnings release, GameStop CEO George Sherman said, “While we delivered a loss for the quarter in total, our performance included total sales just shy of our original expectations, even as stores closed due to the COVID-19 pandemic and key video game titles shifted to the second and third quarters, exacerbating the headwind from operating in the final stage of a console cycle.” Sherman also said, “Even more impressive is that our e-commerce sales grew 519% in the first quarter and over 1,000% during the six weeks that our store base temporarily closed to customer access.  We believe this reflects the loyalty of the GameStop customer and the confidence they place in us as their preferred place to shop.”

In the first quarter, GameStop’s hardware and accessories sales fell 21.8% YoY (year-over-year), while its software sales were down 43.1%. The collectibles revenue declined by 42.5% YoY.

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Financial outlook

GameStop has suspended its financial outlook for fiscal 2020 due to uncertainty amid the coronavirus outbreak. Wall Street analysts expect the company to post sales of $948.6 million in the second quarter of fiscal 2020. The figure would mark a fall of 26.2% YoY compared to $1.29 billion in the second quarter of fiscal 2019. Also, analysts expect the company to post an adjusted EPS of -$1.11 in the second quarter of fiscal 2020 compared to -$0.32 in the same period last year. Currently, analysts expect -11.5% and 4.0% growth in the company’s fiscal 2020 and 2021 revenues, respectively. Meanwhile, they expect an adjusted EPS of -$0.97 and $0.01 in fiscal 2020 and 2021, respectively.

Analysts’ recommendations for GameStop stock

Among the ten analysts following GameStop stock, seven recommend a “hold,” while three recommend a “sell.” None of the analysts recommend a “buy.” Wall Street analysts’ mean target price on the stock is $3.79, which implies a 23.6% loss from the current level of $4.96. The consensus target price for the stock has fallen from $3.99 in May—a reduction of 5.0%.

After the first-quarter earnings report, Jefferies increased its target price on GameStop stock from $4.50 to $5. Telsey Advisory Group also increased the target price from $4.50 to $6, while Wedbush increased it from $4.25 to $5.

Stock returns

GameStop stock fell 1.0% on Tuesday and ended the day at $4.96. At this closing price, the company’s market cap is $320.3 million. Notably, the stock is trading 28.3% below its 52-week high of $6.92 and 93% above its 52-week low of $2.57.

Based on the closing price on Tuesday, GameStop stock was trading 12.7% above its 20-day moving average of $4.40. The stock is also trading 8.8% above its 50-day moving average of $4.56 and 15.1% above its 100-day moving average of $4.31. GameStop’s 14-day relative strength index number is 56. The number indicates that the stock isn’t oversold or overbought.

GameStop stock has a middle Bollinger Band level of $4.40, while its lower Bollinger Band level is $3.88. On Tuesday, the stock closed near its upper Bollinger Band level of $4.92, which indicates that it’s overbought.

On Tuesday, the Dow Jones Industrial Average declined by 300 points or 1.09%. Also, the S&P 500 and the Nasdaq Composite returned -0.78% and 0.29%, respectively. To learn more, read US Stock Market Crash Patron Druckenmiller ‘Humbled.’

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