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GameStop Stock Rises As Cost Reductions Result In A Surprise Profit

GameStop Stock Rises As Cost Reductions Result In A Surprise Profit
As lower costs and job cuts padded the videogame retailer's bottom line, GameStop Corp. unexpectedly reported a profit for the fourth quarter, its first since early 2021. This news sent its shares nearly 50% higher in extended trading.
In an effort to strengthen its digital presence and diversify from its current mainstay of brick and mortar stores as competition from larger retailers heats up, the company has also been shoring up its online sales capabilities.
"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.
The selling, general, and administrative costs at GameStop decreased by roughly 16% during 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.
In contrast to Wall Street's forecast of a loss of 13 cents, the retailer reported an adjusted profit of 16 cents per share.
However, only three analysts had provided estimates for the quarter as many stopped covering GameStop after traders on Reddit's wallstreetbets forum drove a significant increase in the stock throughout 2020 and 2021 without any fundamentals supporting the rally.
The top trending ticker on the retail trader forum Stocktwits, the so-called "meme stock," has dropped 4% this year.
The increase in gross margin to 22.5% from 16.8%, according to Wedbush's Pachter, was well below historical levels of 24% to 29%.
GameStop reduced its inventory to $682.9 million at the end of the quarter from $915 million a year earlier. In fiscal 2022, sales of software and collectibles will account for roughly 47% of total revenue.
A loss of $147.50 million the previous year was replaced by a net profit of $48.2 million for the three months that ended on January 29.
Refinitiv reports that revenue of $2.23 billion exceeded analysts' average estimates of $2.18 billion.

Christopher J. Mitchell

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