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GameStop slides on weak Q2 profit

GameStop (GME) slipped to a loss in the second quarter due to a non-operating tax charge related to its tax matter in France. The top line exceeded analysts’ expectations as hardware sales growth overshadowed the shortfall in software sales. However, the stock slid more than 5% in the after-hours session as earnings missed consensus view.

Net loss was $24.9 million or $0.24 per share compared to a profit of $22.2 million or $0.22 per share a year ago. On an adjusted basis, earnings dropped by 67% to $0.05 per share.

Sales decreased by 2.4% to $1.65 billion, while comparable store sales declined by 0.5%. The company has been struggling to gain customers in stores due to an increase in online game-software downloads.

New hardware sales increased by 20.1% driven by the launch of the Xbox One X and continued strong sales of the Nintendo Switch and PS4. However, new software sales fell by 18.5% primarily due to the lack of significant title launches during the quarter. Pre-owned sales declined 9.9%.

Looking ahead into the full year 2018, the company reiterated its previously issued annual guidance. GameStop continues to expect adjusted earnings in the range of $3.00 to $3.35 per share and the total sales decline of 2% to 6%. Comparable-store sales are still estimated to be in the range of flat to down 5%. Capital expenditures are still projected to be in the $110 million to $120 million range.

GameStop Q2 2018 Earnings Infographics

The company confirmed that it continues to engage with third parties regarding a possible transaction as part of a comprehensive review of strategic and financial alternatives initiated by the board of directors. The ongoing process includes a thorough evaluation of a full range of alternatives to enhance shareholder value. GameStop has been working with Perella Weinberg Partners LP as financial advisor and Sullivan & Cromwell LLP and Pepper Hamilton LLP as legal advisors to assist in the review process.

For the second quarter, digital sales fell by 13.5% due to the sale of Kongregate. Collectibles sales increased 15.7% driven by continued expansion of licensed merchandise offerings, new and improved product offerings and the notable growth in apparel. Store closures hurt Technology Brands sales that dropped by 10.3%.

GameStop earnings plunge 52% in Q1

On September 4, the company’s board of directors declared a quarterly cash dividend of $0.38 per common share. The dividend is payable on October 2, 2018, to shareholders of record on September 18, 2018.

Shares of GameStop ended Thursday’s regular session down 0.74% at $16.14 on the NYSE. The stock has fallen by about 16% in the past year and 10% this year.

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