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Why GameStop's Stock Crashed Today

What happened

Video game and collectibles retailer GameStop (NYSE: GME) reported its third-quarter results on Tuesday morning. Investors were not happy with the numbers GameStop provided, and share prices had dipped as much as 16.3% lower at 10:26 a.m. EST.

So what

The company's net sales fell 25.7% in the holiday quarter, landing at $1.44 billion. Comparable store sales fell 23.2% year over year. GameStop saw an adjusted net loss of $0.49 per share, compared to earnings of $0.49 per share in the year-ago period.

The average Wall Street analyst had been looking for earnings near $0.11 per share on sales in the neighborhood of $1.62 billion.

Based on these results, management also updated its full-year guidance targets. GameStop should now see comparable-store sales fall by a "high-teens" percentage in fiscal 2019, compared to the prediction of a "low-teens" decline three months ago. Adjusted full-year earnings are now aimed at roughly $0.15 per diluted share, down from $1.23 per share and far below the $2.70 per share seen in fiscal year 2018. The company is also pulling back its capital expenditure budget from $90 million or more to at least $80 million.

Image source: Getty Images.

Now what

CEO George Sherman pinned the disappointing results on an "unprecedented decline in new hardware sales" as the current generation of gaming consoles gets long in the tooth. Sherman tried his best to paint this report in a reasonably good light:

"Despite the current top-line trends, we are pleased with the continued strong progress that we are making against our strategic initiatives as we transform GameStop for the future," he said in a prepared statement. "We believe our strategic initiatives will enable us to achieve our long-term growth and profit objectives as we fully leverage our unique leadership position and brand in the video game space."

Good luck with that, George. Your turnaround plan doesn't look realistic, and GameStop could very well be among the next wave of old-school retailers filing for bankruptcy protection. If anything, today's price drop wasn't sharp enough.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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