Meme stock GameStop (GME) is facing challenges after reporting another disappointing earnings and announcing plans to sell up to 20 million shares. Revenue dropped by 31% in Q2 to $798.3 million, missing expectations, as the shift to digital games continues to impact the company.
-
Despite these struggles, GME shares have risen 34% year-to-date, driven by the return of meme trader Keith Gill (Roaring Kitty) in June 2023. Fundamentally, the gains are hard to justify, but the stock's volatility has allowed GME to raise capital by selling shares at high prices.
- Before today's 20 million share offering, GME launched a 75 million share offering on June 7 and a 45 million at-the-market program in mid-May.
- These efforts have boosted GME's cash and cash equivalents to nearly $4.2 billion as of August 3, 2024, providing financial flexibility for its turnaround plan.
- The substantial cash balance also generated nearly $40 million in interest income, contributing to GME's Q2 EPS beat.
-
GME's turnaround strategy focuses on building a stronger omnichannel model, diversifying product offerings, cutting costs, and reducing its store footprint. However, these efforts have yet to significantly boost demand. In Q2, Collectibles revenue fell by 18% year-over-year to $139.4 million, and Hardware & Accessories sales dropped by 24% to $451.2 million.
- GME has been more successful in cutting costs and closing stores. Adjusted SG&A expenses decreased by 14% in Q2 to $280.4 million, and the company has closed over 800 underperforming stores in the past two years.
- The company plans to accelerate this process, expecting to close more stores in the future following its store portfolio optimization review.
The key takeaway is that GME's turnaround is still struggling, and without earnings conference calls, it's hard to predict when the turnaround will yield significant results. However, given the stock's history, a quick recovery from today's selloff wouldn't be surprising.
