Author Topic: GME - Game Stop Corp  (Read 46412 times)

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #130 on: January 13, 2020, 01:22:40 PM »
Horrible results for the nine-week holiday period. Despite just lowering guidance in a big way with Q3 results, they they "now expect fiscal 2019 earnings to be below guidance"

https://gamestop.gcs-web.com/news-releases/news-release-details/gamestop-reports-2019-holiday-sales-results
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5xEBITDA

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Re: GME - Game Stop Corp
« Reply #131 on: January 13, 2020, 01:41:02 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #132 on: January 13, 2020, 02:13:57 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.
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given2invest

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Re: GME - Game Stop Corp
« Reply #133 on: January 13, 2020, 02:54:33 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Huh?  I don't read that *at all*.   First, it's a LOSS now so of course they won't hit the previous per share "profit" guidance.  If they have a net loss, no matter how many shares outstanding it's a per share net loss.  In fact, the less shares outstanding, the higher the per share net loss!

"The Company, while not updating earnings per share guidance at this time, now expects an adjusted net loss for the fiscal year, with adjusted earnings per diluted share impacted by the further deceleration in sales in December. "

It's very poorly worded but I wouldn't read into it as you have.  I don't have a position in this (never have) but continue to be fascinated by the amount of shares they bought back.

5xEBITDA

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Re: GME - Game Stop Corp
« Reply #134 on: January 13, 2020, 03:34:15 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Huh?  I don't read that *at all*.   First, it's a LOSS now so of course they won't hit the previous per share "profit" guidance.  If they have a net loss, no matter how many shares outstanding it's a per share net loss.  In fact, the less shares outstanding, the higher the per share net loss!

"The Company, while not updating earnings per share guidance at this time, now expects an adjusted net loss for the fiscal year, with adjusted earnings per diluted share impacted by the further deceleration in sales in December. "

It's very poorly worded but I wouldn't read into it as you have.  I don't have a position in this (never have) but continue to be fascinated by the amount of shares they bought back.

Hm, you're actually most likely correct and it was me who read the release too quickly.

AlanS

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Re: GME - Game Stop Corp
« Reply #135 on: January 30, 2020, 08:51:32 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

AlanS

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Re: GME - Game Stop Corp
« Reply #136 on: January 30, 2020, 08:55:22 PM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share

Foreign Tuffett

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Re: GME - Game Stop Corp
« Reply #137 on: January 31, 2020, 07:10:31 AM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share

Many four-wall profitable stores are probably just doing a little better than break even. Keep in mind that the stores themselves aren't expensive to operate: Many (most? all?) GME stores only have two full time employees, are very small, are often in B or C type strip malls, etc. Alot of the expenses are not on the store level.....regional managers, corporate executives, marketing, distribution, etc.

The management team is right to close stores. I would actually argue that they are a couple years late in doing so. Recall that this company did not, for all practical intents and purposes, have a management team in place for well over a year.

It was foolhardy to strain the balance sheet by buying back shares. GNC did the exact same thing several years ago just as its business results deteriorated, but its board fired the CEO before he bankrupted the company. Generally speaking a company shouldn't buy back stock if the terminal value of the business is seriously in doubt. 

The "smart plan" here, IMHO, would be to accept that the business is in secular decline and manage it accordingly. Rationalize the store fleet, pay down the debt, and focus on the basic "blocking and tackling" of operating the business.
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AlanS

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Re: GME - Game Stop Corp
« Reply #138 on: February 08, 2020, 06:48:43 AM »
The fine print is that they did not lower EPS guidance despite revising adj. net income downward...this means the Company has been buying back more stock. I suspect they were the ones responsible for the rally shares have had between their last earnings call and now. They also mentioned that liquidity will be $900 million vs. $1 billion, and I suspect the difference being cash they had but now spent. Very interested to see 4Q19 / FY19 results...I suspect they will be in a precarious cash situation.

Those are all smart thoughts

I think (and this is very much just my opinion since management has not openly said this) the plan is to close a bunch of stores in Q1 of FY 2020 and use the liquidity from inventory liquidations to buttress the balance sheet until the start of the next console cycle. I don't think this is a particularly smart plan, but I suspect it is more-or-less how management is thinking about the situation.

Foreign Tuffett,

Just seeking your views, what would be a smart plan in this situation ?

Judging from a cash preservation point of view, they should close down unprofitable stores and improve margins. This would dramatically decrease net sales but improve cashflow and margins and ultimately survivability. About 90% of Gamestops 5,000+ outlets are cashflow positive , and I dont really see an issue if you close down the remaining non-profitable ones. Though based on the recent updates, this 90% would have dropped as video game sales suffer overall.

On the other hand, instead of conserving cash and paying down debt they did a huge buyback, as a vote of confidence that the shares are undervalued, confident of their ability to weather the year till the next console cycle.

Agreed that with a net loss and sharebuyback , the EPS would be terrible. And it is ironic in Burry's letter to management that he said

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis....shareholders do not have faith in current management, and have not been inspired by new leadership policies.... All of this creates the opportunity to enter 2020 with a dramatically reduced share count along with multi-fold greater impact per share for every single other achievement of management."

The impact per share part is correct, but its a negative impact per share

Many four-wall profitable stores are probably just doing a little better than break even. Keep in mind that the stores themselves aren't expensive to operate: Many (most? all?) GME stores only have two full time employees, are very small, are often in B or C type strip malls, etc. Alot of the expenses are not on the store level.....regional managers, corporate executives, marketing, distribution, etc.

The management team is right to close stores. I would actually argue that they are a couple years late in doing so. Recall that this company did not, for all practical intents and purposes, have a management team in place for well over a year.

It was foolhardy to strain the balance sheet by buying back shares. GNC did the exact same thing several years ago just as its business results deteriorated, but its board fired the CEO before he bankrupted the company. Generally speaking a company shouldn't buy back stock if the terminal value of the business is seriously in doubt. 

The "smart plan" here, IMHO, would be to accept that the business is in secular decline and manage it accordingly. Rationalize the store fleet, pay down the debt, and focus on the basic "blocking and tackling" of operating the business.

Agreed on that front.

This can still be a low/negative growth with some terminal value if the management doesn't do something stupid. But I find the part on them refocusing Gamestop as a gathering place of sorts and an experiential gaming hub that I find concerning.

mikazo

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Re: GME - Game Stop Corp
« Reply #139 on: February 08, 2020, 08:21:15 AM »