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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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