GameStop Stock: Q1 Earnings and an Executive Shakeup
- GameStop's Q1 earnings showed a loss per share of 14 cents, beating expectations, but revenue decreased 10% year over year.
- The company unexpectedly fired CEO Matt Furlong and elevated Ryan Cohen to the executive chairman role, leading to an initial stock drop.
- GameStop aims to focus on profitability and leverage its brand equity for growth, while Cohen's leadership is expected to bring long-term value creation for stockholders.
GameStop's Q1 Earnings Overview
This week, GameStop (GME) reported a mixed bag of first-quarter earnings results.
The video game retailer reported a net loss per share of 14 cents — an improvement over the 52-cent-per-share net loss it reported a year ago. The loss was also narrower than Wall Street's forecast of a 15-cent-per-share net loss.
Clearly, the company's strategy of reducing costs is working to a degree. GameStop reported a nearly 28% year-over-year reduction in its selling, general, and administrative (SG&A) expenses.
This also helped the company's balance sheet — one of GameStop's strongest points — end the quarter with $1.06 billion in cash.
However, first-quarter revenue came in lower than expected. GameStop reported revenue of $1.24 billion, a 10% drop from the $1.38 billion in revenue it saw in the first quarter of 2022. It also fell short of analyst estimates by $120 million.
According to GameStop, this poor sales performance was due to currency fluctuations, a weak quarter for new game releases, and low sales of pre-owned games and collectibles.
In its quarterly filing, GameStop reiterated that it will continue to focus on reaching three overarching goals:
- Establishing an omnichannel retail experience, with strength in both its online and brick-and-mortar outlets;
- Achieving profitability; and
- Leveraging its brand equity to support its growth.
GameStop also provided shareholders with an update on the number of GME shares registered with Computershare, its transfer agent.
As of June 1, shareholders had registered 76.6 million shares with the transfer agent. That's an increase of 600,000 over the last quarter and implies that 25% of the company's outstanding shares are being kept away from brokerages and banks.
Don't miss: GameStop Stock: 76.6 Million Shares Registered Holders With GME's Transfer Agent
GameStop's C-Suite Shakeup
But GameStop's earnings results were overshadowed by the news that the company had fired CEO Matt Furlong after roughly two years at the helm.
GameStop also announced it had appointed its board chairman, Ryan Cohen, to serve as CEO in Furlong's place. The company's general counsel, Mark Robinson, who has worked with GameStop since 2015, has been appointed the general manager and principal executive officer.
In his trademark irreverent style, Ryan Cohen posted a play on Furlong's name to his Twitter account:
GameStop had hired Furlong — who had previously been an Amazon (AMZN) executive — in 2021, under Cohen's influence.
Back then, the company was embarking on a turnaround plan to make GameStop a major e-commerce player. However, the company struggled during his tenure, reporting only one profitable quarter.
Through his holding company, RC Ventures, Cohen is GameStop's largest shareholder, owning approximately 12% of GME shares. But although he's an activist investor, he also has practical experience that GameStop could use. He was the founder and CEO of Chewy (CHWY) until stepping down in 2018 to pursue other goals.
In a regulatory filing, GameStop said, "We believe the combination of [recent] efforts to stabilize and optimize our core business and achieve sustained profitability while focusing on capital allocation under Mr. Cohen's leadership will further unlock long-term value creation for our stockholders."
How the Announcement Affected GME Stock
The news that GameStop had fired Furlong sent shares plummeting by about 20%.
However, considering the stock's strong performance this year — GME has enjoyed more than 50% gains since January — GameStop is still outperforming the S&P 500.
The market rarely interprets the departure of a CEO as a good thing. But the GME selloff was likely driven largely by "market participants'' other than the company's loyal base of retail shareholders.
GameStop's shareholders are likely to take a positive view of the news of Cohen becoming CEO.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. The article may contain affiliate links, but these partnerships do not influence editorial content.)
