GameStop shares surge as cost cuts drive surprise profit

GAMESTOP on Tuesday (Mar 21) posted a surprise profit for the fourth quarter, its first since early 2021, as lower costs and job cuts padded the videogame retailer’s bottom line, sending its shares nearly 50 per cent higher in extended trading.

The company has also been shoring up its online sales capabilities in a bid to beef up its digital presence and diversify from the current mainstay of brick-and-mortar stores as competition heats up from bigger retailers.

“We’re aggressively focused on year-over-year profitability improvement while still pursuing pragmatic long-term growth,” CEO Matt Furlong said in a post-earnings conference call.

GameStop’s selling, general and administrative costs fell by about 16 per cent in the quarter.

“It’s unlikely that they can grow by spending less. I expect them to return to losses again next quarter, and think this is a one-off result,” said Wedbush Securities analyst Michael Pachter.

The retailer posted an adjusted profit of 16 US cents per share, compared with Wall Street expectations for a loss of 13 US cents.

Just three analysts had provided estimates for the quarter, however, as several stopped covering GameStop after traders on Reddit’s wallstreetbets forum drove a massive surge in the stock across 2020 and 2021 with no fundamentals driving the rally.

The so-called “meme stock”, which is the top trending ticker on retail trader forum Stocktwits, has declined 4 per cent this year.

Wedbush’s Pachter also said the rise in gross margin to 22.5 per cent from 16.8 per cent was well below historical levels of 24 per cent to 29 per cent.

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GameStop lowered its inventory to US$682.9 million at quarter-end from US$915 million a year earlier, with sales of software and collectibles accounting for about 47 per cent of revenue in fiscal 2022.

Net profit for the quarter ended Jan 29 was US$48.2 million, compared with a loss of US$147.50 million a year earlier.

Revenue of US$2.23 billion was above analysts’ average estimates of US$2.18 billion, according to Refinitiv. REUTERS