GameStop earnings are due. Can management change the narrative?

By Bill Peters

The videogame retailer has struggled to put up a consistent profit over the past three years

Videogame retailer and meme stock GameStop Corp. reports second-quarter results on Wednesday after the market close, as broader videogame-industry growth and some popular releases run up against as executive upheaval at the company.

The results will arrive following the ouster of GameStop's (GME) chief executive and the resignation of its chief financial officer and come amid concerns, despite a solid cash cushion, about the chain's market share and a shift to online gaming. The company didn't hold an earnings call during its last round of quarterly results, and how much detail investors will get this time around remains to be seen.

"The videogame industry grew in [the second quarter], but a continuing digital mix shift likely impacted GameStop traffic," Wedbush analyst Michael Pachter said in a research note on Friday.

GameStop's net cash pile of around $1.3 billion should keep it afloat as it searches for new ways to turn a steady profit, he said, adding that if quarterly results missed expectations, management "may still be able to shift the narrative."

Here's a look at what to expect.

What to expect

Earnings: The two analysts polled by FactSet expect GameStop to lose 14 cents a share. Estimize, which crowdsources estimates from hedge funds, academics and others, forecast a loss of 12 cents a share. The company has struggled to put up a consistent profit over the past three years.

Revenue: FactSet estimates call for revenue of $1.14 billion. Estimize forecast $1.13 billion.

Stock movement: Shares of GameStop were up 3.7% on Tuesday. The stock is up 11% so far this year, with bigger moves in between. While shares trended lower through much of the summer, they began rebounding late last month.

What else to watch for

GameStop in June fired its chief executive, Matthew Furlong, an Amazon.com Inc. (AMZN) veteran who had been appointed two years earlier. The company in June also said its board had elected activist investor Ryan Cohen, the co-founder of online pet-supplies retailer Chewy Inc., as executive chair.

The press release announcing that move offered little detail. But GameStop, in a filing, said Cohen's leadership would "further unlock long-term value creation for our stockholders." The company said it appointed Mark Robinson as general manager and principal executive officer.

In July, GameStop said Chief Financial Officer Diana Saadeh-Jajeh would resign on Aug. 11. Daniel Moore, it said then, would become interim principal financial officer.

Cohen's influence over GameStop has grown since 2020. Under his guidance, the company last year put a bigger focus on physical stores after stumbles in its e-commerce push, the Wall Street Journal noted.

Pachter, in his note, said that growth in hardware, or things like consoles, for companies like Nintendo and Sony (6758.TO), as well as a "compelling" lineup for new games and other software, indicated potential good news for GameStop's results during the second quarter. But he pointed to "underwhelming" hardware sales from Microsoft Corp. (MSFT) and said GameStop "appears to have lost market share in recent quarters," adding that its collectibles business -- which includes items like toys and trading cards -- faces difficult comparisons. He also noted the threat from a broader migration toward digital, mobile and subscription gaming.

"There were notable new game releases such as Activision's (ATVI) Diablo IV and Nintendo's The Legend of Zelda: Tears of the Kingdom, with the majority of sales likely occurring digitally," Pachter said.

-Bill Peters

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09-06-23 0822ET

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