GameStop shares surge as cost cuts drive surprise profit

By Akash Sriram

(Reuters) -GameStop Corp on Tuesday posted a surprise profit for the fourth quarter, its first since early 2021, as lower costs and job cuts padded the videogame retailer’s bottom line, sending its shares nearly 50% higher in extended trading.

The company has also been shoring up its online sales capabilities in a bid to beef up its digital presence and diversify from the current mainstay of brick-and-mortar stores as competition heats up from bigger retailers.

“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.

GameStop (NYSE:)’s selling, general and administrative costs fell by about 16% in 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.

The retailer posted an adjusted profit of 16 cents per share, compared with Wall Street expectations for a loss of 13 cents.

Just three analysts had provided estimates for the quarter, however, as several stopped covering GameStop after traders on Reddit’s wallstreetbets forum drove a massive surge in the stock across 2020 and 2021 with no fundamentals driving the rally.

The so-called “meme stock”, which is the top trending ticker on retail trader forum Stocktwits, has declined 4% this year.

Wedbush’s Pachter also said the rise in gross margin to 22.5% from 16.8% was well below historical levels of 24% to 29%.

GameStop lowered its inventory to $682.9 million at quarter-end from $915 million a year earlier, with sales of software and collectibles accounting for about 47% of revenue in fiscal 2022.

Net profit for the quarter ended Jan. 29 was $48.2 million, compared with a loss of $147.50 million a year earlier.

Revenue of $2.23 billion was above analysts’ average estimates of $2.18 billion, according to Refinitiv.