'Big Short' legend Michael Burry recently unveiled a bullish bet on GameStop - but the retailer's shares are plummeting after a dismal earnings report
- 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'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.
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."
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
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.
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.
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