Please ensure Javascript is enabled for purposes of website accessibility

What GameStop Wants Investors to Know

By Demitri Kalogeropoulos – Updated Sep 11, 2018 at 5:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Highlights from the video-game retailer's latest earnings call.

There isn't much certainty around GameStop's (GME 6.20%) business right now. The specialty retailer lacks a permanent CEO and is exploring a sale that might (or might not) result in its removal from public markets. Meanwhile, sales and profit margins are declining as the company struggles with unfavorable shifts in the video-game market and spotty performances by its newer business lines.

Against that risky backdrop, interim CEO Shane Kim held a conference call with investors to discuss GameStop's latest operating trends and its plans for the back half of the year. Below are three key highlights from that presentation. 

Five friends playing video games.

Image source: Getty Images.

No big surprises

We delivered sales and earnings that were in line with our expectations. We knew the comparisons to last year would be difficult given the overlap of the highly successful Nintendo Switch launch last year and a light title slate within the first half of this year. -- CFO Robert Lloyd

GameStop met executives' high-level targets as sales at existing locations were roughly flat to mark a solid improvement over the prior quarter's 5% slump. Yet, digging a bit deeper, its results described a business that's still struggling with uneven demand.

The new and pre-owned software segments both declined, and that shift combined with an increase in low-margin hardware sales to send profitability lower for the video-game unit and the broader business.

GME Operating Margin (TTM) Chart

GME Operating Margin (TTM) data by YCharts.

The collectibles business endured weaker traffic and lower gross margins, but it posted steady sales growth. GameStop's consumer tech segment had mixed results, too, with sales falling 10% but earnings improving significantly.

It's all about the back half of the year

Our teams are beyond excited about the titles launching and eager to leverage GameStop's industry-leading position to drive what we think can be one of the best holiday seasons we've seen in quite some time. -- Lloyd

GameStop affirmed its full-year outlook that calls for sales to range from flat to a decline of 5% as adjusted earnings come in between $3 per share and $3.35 per share. The profit total through the first half of the year amounts to just $0.43 per share, though, which means nearly 90% of earnings will come over the next six months.

The retailer pointed investors toward a stacked pipeline of video-game releases in franchises like Call of Duty, Battlefield, Super Mario Party, and NBA 2K as support for that aggressive outlook. Their optimism extends to the collectibles division, too, and to an accessories segment that's being lifted right now by the popularity of Fortnite.

Asking for patience

GameStop's board of directors ... is conducting a broad range review of strategic and financial alternatives to enhance shareholder value. These options include, among others, a potential sale of the company. Given that activity, we are not likely to name a CEO until these discussions and the process have concluded and we have a clear path forward. -- Kim

Executives didn't have any concrete updates to share about the ongoing talks with potential buyers of the business. Instead, the management team is asking for patience from investors as they go through a process that might not result in any transaction. If those talks break down, other key questions going forward start with the retailer's choice of a new chief executive.

GameStop tried to assure shareholders that whatever path the company lands on will have healthy returns as its guiding force. "We have a long track record of being a shareholder-friendly company, and we'll continue to be," Lloyd said. "We appreciate the support of our long-term shareholders as we navigate the changes in our organization and our ongoing strategic review."

Demitrios Kalogeropoulos owns shares of GameStop. The Motley Fool owns shares of GameStop and has the following options: short October 2018 $15 calls on GameStop. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.