GameStop (GME) Didn't Deliver the Needed Big Changes Yet, BofA Securities Reiterates $10 PT
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BofA Securities analyst Curtis Nagle reiterated an Underperform rating on GameStop (NYSE: GME) after the company reported 4Q EPS of $1.34, below the $1.43 Street consensus and driven by a large tax credit in the quarter. EBITDA missed expectations by 66% ($48mn vs. $144mn) driven by very underwhelming gross margins (366bps below forecast). Comp sales were roughly inline at 6.5% with Holiday comps of 4.8%. For February, GME reported that global comp sales were up 23% vs. US industry hardware & software sales up 82% per NPD and implying a continuation of material share loss. With industry comps getting much tougher starting in March, the company will be very challenged.
The analyst reiterated the $10 PT, stating "change is needed and soon. Steps have been taken including new board members and senior management with digital experience (including former CHWY CEO and founder Ryan Cohen). However, very little detail on a plan was given on GME 4Q’s call (and Q&A was barred) aside from high level points on product line expansion for “adjacent” gaming categories, better customer experience, tech and fulfilment. We continue to be very skeptical on GME’s efforts to address its long standing issue of digital disintermediation and the fact that it’s core market in new and pre-owned physical console gaming is shrinking at a rapid pace. GME also called out leveraging its existing digital assets like its PowerUp rewards program but this has seen declining engagement for years".
Shares of GameStop closed at $157.02 yesterday.
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