ADVERTISEMENT

'Big Short' legend Michael Burry recently unveiled a bullish bet on GameStop — but the retailer's shares are plummeting after a dismal earnings report (GME)

GameStop tanked as much as 18% on Wednesday after the company pushed its yearly sales forecast lower and announced a decline in second-quarter revenue for nearly all of its businesses.

gamestop line
  • GameStop's CEO announced a new plan to boost its operating profit by $200 million by 2021, focusing on optimizing business efficiencies and building out its digital marketplace.
  • The loss is a big hit to famed "Big Short" investor Michael Burry's recently-disclosed 3% stake in the video game retailer , made through his hedge fund.
  • Burry said the company's balance sheet was in "very good shape" and that the expected inclusion of disk drives in next-generation consoles will "extend GameStop's life significantly."
  • Watch GameStop trade live here .
ADVERTISEMENT

GameStop tumbled as much as 18% on Wednesday after the video-game retailer announced slowing revenue, accelerated losses and lowered sales expectations for the year.

The company saw year-over-year slowdown in hardware, software, accessory, and used-product sales through its second quarter. The flop in pre-owned sales hits GameStop the hardest, as it brings the company the highest profit-per-sale and continues a trend of such sales declining .

The "Big Short" legend Michael Burry recently disclosed a 3% stake in GameStop through his hedge fund, Scion Asset Management. The investor, portrayed by Christian Bale in the Oscar-nominated 2015 film, urged the company's board to continue its $300 million share buyback program, adding the company's balance sheet was in "very good shape."

ADVERTISEMENT

Burry also noted the expected inclusion of disk drives in next-generation consoles will "extend GameStop's life significantly," as the retailer focuses on physical game sales.

Burry's announcement sent the company's stock up as much as 20% on August 22. His investment has netted the firm more than $2 million since then despite Tuesday's earnings disappointment.

Here are the key numbers from GameStop's earnings report:

Earnings per share: -$0.32, versus the -$0.194 estimate

Revenue: $1.286 billion, versus the $1.338 billion estimate

ADVERTISEMENT

Pre-owned video game product sales: $373.1 million, down 17.5% year-over-year

2019 same-store sales forecast: down a low-teens percentage, after expecting a drop of 5% to 10%

Company CEO George Sherman revealed the new GameStop Reboot plan in the second-quarter report, with the goal of improving the retailer's operating profit by $200 million by 2021. The strategy seeks to optimize business efficiencies, establish stores as a social hub for gaming, build out a digital marketplace, and improve relationships with partners and vendors.

"We are committed to acting with a sense of urgency to address the areas of the business that are critical to achieving long-term success and value creation for all our stakeholders," Sherman said.

Markets Insider is looking for a panel of millennial investors. If you're active in the markets, CLICK HERE to sign up.

ADVERTISEMENT

The lower-than-expected figures arrive as Microsoft and Sony announce more details about their next generation of video game consoles. GameStop saw sales drop ahead of the Xbox One and PS4 announcements in 2013, so the recent report may reflect a similar pattern, CFO Jim Bell said.

"While we experienced sales declines across a number of our categories during the quarter, these trends are consistent with what we have historically observed towards the end of a hardware cycle," Bell noted.

GameStop closed at $5.09 per share Tuesday, down about 60% year-to-date.

The retailer has one "buy" rating, seven "hold" ratings, and three "sell" ratings from analysts, with a consensus price target of $5.05, according to Bloomberg data.

Now read more markets coverage from Markets Insider and Business Insider:

ADVERTISEMENT

Jamie Dimon reveals JPMorgan is already preparing for the possibility of zero-percent interest rates in the US

CITI: Gold could shatter $2,000, reach all-time high if recession risks continue

Meet the 8 Blackstone dealmakers who insiders say are the firm's future

ADVERTISEMENT

See Also:

FOLLOW BUSINESS INSIDER AFRICA

Unblock notifications in browser settings.
ADVERTISEMENT

Recommended articles

Sony’s creators convention redefines the creative landscape for content creators

Sony’s creators convention redefines the creative landscape for content creators

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

Egypt, Nigeria, and South Africa ranked as Africa's most polluted countries in new report

10 African countries with the lowest life expectancy according to the World Bank

10 African countries with the lowest life expectancy according to the World Bank

Kenyan women are more obese than their men - here’s why

Kenyan women are more obese than their men - here’s why

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

Africa’s richest man Dangote stands between Europe and $17 billion in revenue

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

After months of exchanging blows, Kenya and Uganda takes steps towards resolution

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

Africa's first black billionaire could join $2.9 billion Vivendi bid for MultiChoice

10 most dangerous African countries in 2024

10 most dangerous African countries in 2024

Russia’s nuclear influence expands further north of Africa

Russia’s nuclear influence expands further north of Africa

ADVERTISEMENT