Earnings preview: How will Q2 play out for GameStop?

GameStop Corp. (NYSE: GME) is slated to report second quarter 2019 earnings results on Tuesday, September 10, after the closing bell. Analysts estimate the company will report a loss of $0.20 per share on revenue of $1.34 billion.

GameStop has seen its sales drop over the past two quarters with declines in most of its segments except for video game accessories and collectibles. The increases in these two categories have not been sufficient to offset the weakness in the other divisions.

Analysts do not expect this scenario to change in the second quarter and revenue is expected to decline double digits in the absence of any new strategy to drive growth. The Street has projected a loss for the second quarter as opposed to the earnings generated in the past two quarters.

GameStop’s shares have fallen 66% thus far this year and investors are concerned about its future. The company is struggling in a tough competitive environment dominated by digital downloads and online games.

However, not everyone is pessimistic about the stock. Last month, investor Michael Burry disclosed that his firm Scion Asset Management has a 3% stake in GameStop and also stated that the company’s balance sheet was in good shape.

Burry believes that GameStop’s hardware sales will benefit from the release of Sony (NYSE: SNE) and Microsoft’s (NASDAQ: MSFT) next-generation consoles, which are slated for next year, and that this will help the company rebound.

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In the first quarter of 2019, GameStop reported better-than-expected earnings but missed sales estimates. Net sales dropped 13% to $1.5 billion while adjusted EPS plunged 77% to $0.07. Analysts had forecast a loss of $0.03 per share. Comparable store sales declined 10.3%.

Last quarter, the board of directors decided to eliminate the quarterly dividend in order to strengthen the company’s balance sheet and provide increased financial flexibility and optionality. By not paying the dividend, the company expects to preserve about $157 million in cash annually, based on the dividend amount paid in 2018.

For fiscal-year 2019, GameStop expects both sales and comparable sales to decline in the range of 5-10%.

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