Proactive Investors - GameStop Corp (NYSE:GME) could deliver a top line earnings beat for the holiday shopping quarter based on industry trends, analysts at Wedbush believe.
The video game retailer turned meme stock will report its results for fiscal 4Q after the stock market closes on Tuesday, March 26.
The Wedbush analysts forecast quarterly sales of $2 billion, down 10.1% year-over-year. They noted that the quarter included an extra week, with the quarter ending on February 3.
Earnings per share are seen improving from $0.16 in the year-ago quarter to $0.25.
“Overall industry sales were up modestly in 4Q 2023, with declining hardware sales offset by a quarter of strong software releases,” the analysts wrote.
“GameStop will benefit from industry trends during the quarter, but continued losses in market share and a mix shift towards digital likely led to underperformance in the quarter.”
In terms of profitability, the analysts believe this should benefit from a mix shift towards higher-margin software as well as continued cost discipline.
“GameStop’s bottom line should benefit from this mix shift towards software, as well as recent cost control measures like store closures and a reduction in labor, consulting, and marketing costs,” they wrote.
The analysts do not expect GameStop’s management team to provide detailed financial guidance for fiscal 2024.
“Management continues to be opaque, refusing to hold a conference call or Q&A session,” they pointed out. “In addition, the company has not provided sales or earnings guidance since 2019.”
They forecast earnings per share of $0.04 on sales of $5 billion for fiscal 2024, compared to the consensus estimates of $0.12 on $5.2 billion, respectively.
“We expect the Street’s estimates to come down gradually as GameStop continues to lose market share throughout fiscal 2024,” they wrote.
Regardless of the upside potential, the analysts wrote that GameStop continues to face obstacles in its return to sustained growth, namely the mix shift of game sales from physical to digital, increasing wallet share for microtransactions, the growth of subscription services, and the potential for hardware sales to gradually decline from streaming.
They also noted a lack of a clear strategy from GameStop to enter new categories they believe have compelling growth potential.
“The shares continue to trade at a level that fails to fully account for the many challenges ahead,” they wrote.
GameStop shares traded 6.1% higher at $13.90 mid-morning on Monday. The analysts have an ‘Underperform’ rating and a $6 12-month price target on the stock.