GameStop Sinks on Profit Disappointment, Possible Share Sale

(Bloomberg) — GameStop Corp., the roller-coaster stock championed by Reddit-based traders, tumbled in premarket trading after the company posted disappointing fourth-quarter earnings and said it’s considering a share sale that would capitalize on soaring demand.

Shares of the video-game retailer fell 12% to $160 as of 5:58 a.m. in New York on Wednesday after it reported profit in the period ended Jan. 30 of $1.34 a share, excluding some items. That compared with an average projection of $1.43 from analysts.

Though a new generation of game consoles helped spur purchases, the company didn’t get as big a bump as expected. Net sales fell 3.3% to $2.12 billion in the quarter, short of the $2.24 billion estimate. Still, the console surge helped lift same-store sales by 6.5%, with online revenue up 175%.

GameStop shares have soared more than ninefold this year on frenzied buying by individual investors that kicked off in January. The company has been considering since then whether to sell new shares and whether to increase the size of its program under which it can sell stock at prevailing market prices, it said in its annual regulatory filing late Tuesday. Under the deal signed in December with Jefferies Financial Group Inc., GameStop can sell as much as $100 million of stock, according to a filing.

The proceeds of a sale would primarily help finance the company’s push into e-commerce, it said.

New Hires

GameStop also announced a trio of new executive hires to help carry out that shift to digital. It named technology veteran Jenna Owens as chief operating officer, bringing on board an Inc. and Google alum to steer. It also appointed two other executives with tech experience as part of a push by activist investor and board member Ryan Cohen to make the brick-and-mortar chain a digital powerhouse.

While investors were expecting more guidance from GameStop on its new strategic direction, the company declined to take questions on a call with investors late Tuesday. Cohen wasn’t on the call. And no forecasts were provided in its earnings statement.

“I don’t think the results matter much at this point — people will be looking to how they transform themselves from here to reduce the reliance on brick and mortar and expand e-commerce,” said Bloomberg Intelligence analyst Matthew Kanterman. “But this is no easy task, despite who they bring in to help drive the turnaround.”

Customer Service

Chief Executive Officer George Sherman said the company will focus this year on customer service and experience — both key components to a successful turnaround for GameStop.

“They’ve identified the key factors, but it’s still a matter of hearing more about the actual strategy to deliver unique value to customers. Hopefully they add more to that discussion soon,” said Doug Clinton, managing partner at Loup Ventures.

Despite falling for the last four sessions in New York, the stock is pricing in an “optimistic bright blue scenario (or better),” Colin Sebastian, an analyst at Robert W. Baird & Co., wrote in a note, keeping GameStop at neutral.

(Updates to add possible share sale in first paragraph.)

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