Earnings preview: Brace for the worst as GameStop reports Q4 results

Following a quarter of uninspiring run at the stock market, video game retailer GameStop (NYSE: GME) is set to report fourth-quarter results on Tuesday, April 2, after the closing bell. Wall Street is bracing for the worst and expects a decline in both revenue and income during the quarter.

The company had earlier reported that it had a lackluster holiday season when sales declined in double digits in the Technology brands unit as well as pre-owned products segments. Though sales of collectibles increased by 3.7% during the holiday period, it wasn’t enough to offset the overall weakness.

For the fourth quarter, analysts expect GameStop to report earnings of $1.59 per share, compared to $2.02 per share in the fourth quarter of 2017. Revenue is projected to decline 6% to $3.29 billion, with zero growth in comps sales.

Contracting margins have been a major cause of concern for the Texas-based retailer, and the company had been mulling strategic alternatives including a sale. However, in January, the company stated that it was abandoning its plans to go on sale “due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.”

This sent the stock spiraling 22%, wiping off $360 million in valuation.

Meanwhile, the company did complete the sale of its Spring Mobile unit for $700 million to Prime Communications, in order to put an ax on its debts.

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Last week, GameStop appointed retail veteran George Sherman as its CEO. Though Sherman is set to take charge only on April 15, investors will likely be interested in hearing out the management on this appointment, as well as the future course of action expected to improve the company’s performance.

The stock has a 12-month average price target of $11.86, suggesting a 16% upside from the last close.

In Q3

When the company last reported earnings results in November, the stock had tumbled 12% on weak fiscal 2018 guidance. Meanwhile, earnings and revenues had managed to top Street estimates.

Adjusted earnings of the Texas-based firm climbed to $0.67 per share in the third quarter from $0.54 per share a year earlier. The bottom line also exceeded analysts’ expectations. On an unadjusted basis, the company reported a net loss of $488.6 million or $4.78 per share, compared to a profit of $59.4 million or $0.59 per share in the year-ago quarter.

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