A look ahead to GameStop’s Q2 results

It remains a hugely popular stock, but what should investors expect when latest corporate results are published?

GameStop (NYSE:GME) has gone down in Wall Street history as one of the most phenomenal stock market performers ever. In just a few days in January this year, the video game retailer’s share price rocketed from under $20 to almost $500, driven by a new breed of anti-establishment investor – the so-called meme stock was born.

Given the startling gains and apparent lack of fundamental rationale for them, there was reason for caution, and we issued our own warning to investors about the risks involved in this type of investing strategy.  

The price of GameStop stock did indeed fall as quickly as it had risen. However, in the months since, there has been a resurgence of interest in the company following changes to management and adoption of a more convincing strategy. 

In June, we heard that net sales for the first quarter ended 1 May rose 25% to almost $1.3 billion, despite a 12% reduction in the number of retail stores. Costs fell, but GameStop still reported an operating loss of $40.8 million, net loss of $66.8 million and adjusted net loss of $29.4 million, although those numbers were down from $108 million, $165.7 million and $157.6 million, respectively, a year earlier.

The stock is now back above $200. 

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So, what to expect when executives unveil second-quarter results after the US market closes tomorrow?

Well, in June, the company said it was still suspending guidance on the outlook for 2021, which makes it more difficult for Wall Street analysts to make forecasts. However, GameStop did say it believed, for now, that total net sales is the most appropriate metric to evaluate performance.

“The company’s second quarter sales trends continue to reflect momentum, with May total sales increasing approximately 27% compared to last year,” it said.

Current media reports have analysts expecting GameStop to post losses of between 42 cents and 67 cents per share for the second quarter versus a loss of $1.40 the same time last year. Revenue is tipped to rise over 19% to more than $1.1 billion.

For the full year, UK financial data provider SharePad currently shows a forecast for net sales of $5.57 billion, up 9.5% on the year to 30 January 2021. There is no word on the bottom line.

Given past behaviour, investors should beware of a possible spike in volatility both before and after the second-quarter results.