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GameStop (GME) earnings preview: Q3 results will be a test of turnaround strategy

When video game retailer GameStop Corp. (NYSE: GME) releases third-quarter numbers on Tuesday after the market’s close, the event will be closely followed for updates on the management’s turnaround strategy. Meanwhile, the general sentiment ahead of the report is not very encouraging. Analysts predict an 84% fall in third-quarter earnings to $0.11 per share, compared to last year, on revenues of $1.62 billion.

GameStop (GME) reports massive losses for Q2

Ambitious Plan

Coinciding with the last quarterly report, the management had laid down a comprehensive turnaround strategy with focus on optimizing the core business and building digital capabilities. However, there have been concerns that the ‘GameStop Reboot’ plan might not yield the desired results as it involves aggressive cost-cutting that would require widespread store closure.

Related: GameStop Earnings Conference Call Transcript

Also, it needs to be seen to what extent the efforts to create social gaming hubs would help in addressing the daunting challenge of customers turning to online platforms to buy consoles and download games.

Digital Push

Meanwhile, the continuing digital push aimed at boosting omnichannel capabilities – in response to weak store footfall and competition from rivals in the e-commerce space – could be a game-changer for the company.

Also see: Huya names Catherine Xiaozheng new CFO

In addition to the falling customer traffic, the top-line will also be hurt by unfavorable currency exchange rates. A part of the impact could have been mitigated, had the company released more titles and rolled out promotional offers. The increased focus on products that yield higher margins and the steady performance of the collectibles business are the promising areas as far as sales are concerned.

Mounting Loss

In the second quarter, the company incurred a loss of $0.32 per share that also fell short of expectations, triggering a stock selloff. Reflecting the dismal comparable store performance, sales dropped 14% to $1.29 billion and missed the Street view.

Electronic Arts

Among others, Electronic Arts Inc. (EA) recently reported above-consensus earnings and revenues for the second quarter of 2020. Encouraged by the positive results, the company revealed plans to double down on live services. At $1.35 billion, revenues were up 5% year-over-year.

GameStop lost significant market cap in recent years as the stock dropped consistently and slipped to an all-time low earlier this month. The value dropped 59% since the beginning of the year and more than halved in the past twelve months.

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Rite Aid (NYSE: RAD) stock remains on cautious stance

Rite Aid Corporation (NYSE: RAD) stock remained on the green territory on Friday after falling over 24% in the past month. The company has been struggling to recover from the multi-year low on August 27 of $5.04. So far this year, the shares have fallen over 43% despite rising over 12% in the past three months.

Investors remained cautious ahead of the company’s earnings results for the third quarter of 2020 in the mid of December. The stiff competition in the drugstore industry has been impacting the company. This pressurized Rite Aid into making additional investments in the marketing space for acquiring customers.

Image for representation. Courtesy: Rawpixel on Unsplash.

However, the company has been trying to enhance its digital capabilities for driving growth and developing stronger relationships with its customers. Rite will amend marketing investments for attracting customers into its digital channels, resulting in higher in-store and online revenue.

The digital business, which remained a significant opportunity for the company, has risen relatively small during the second quarter. In the long term, the digital business could turn out to be the major contributor to growth for Rite Aid.

The company continues to face weakness in the Retail Pharmacy segment due to lower foot traffic count at its stores. The company could turn beneficial in the future as its partnership with Amazon (NASDAQ: AMZN) for adding locker and counter services will drive additional traffic and attract new customers to Rite Aid stores.

Read: MongoDB Q3 earnings preview

Despite this, the company’s Medicare Part D enrollment continues to expand and now has roughly 672,000 enrolled Part D members for 2019. Rite Aid has been focusing on certain areas for improving operating performance, cost structure, and service levels.

The company remained very optimistic about the company’s growth prospects in the future. Also, the company could be beneficial by the investments in the attraction of the customers into its stores. These are likely to be the driving factor of the stock.

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