Why GameStop Corp. (NYSE: GME) stock is crashing

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GameStop Corp. (NYSE: GME) stock crashed over 15.9% in the pre-market session of 11th September, 2019 (as of  6:21 am GMT-4; Source: Google finance) as the company has reported a loss of $415.3 million, even after stripping out a $363.9 million goodwill impairment charge and other costs that pushed the total impairment charges to more than $400 million. The gross margins declined by 30 basis points to 31.0%, primarily due to a markdown activity related to the wind down of our thinkgeek.com business. During the quarter adjusted operating loss was of $46 million compared to operating earnings of $1.5 million last year. GME ended the quarter with $707 million of total cash and liquidity comprised of $424 million in cash and $283 million in net availability under our revolving line of credit, which is an increase of $20 million from the prior year. The company has ended the quarter with long-term debt of $419.1 million versus $819.2 million at the end of the second quarter of 2018. The company ended the quarter with inventory of $949 million, a 16% decline from the second quarter last year. During the quarter, the company had $23 million of capital expenditures bringing the year-to-date total to $41 million.

GME in the second quarter of FY 19 has reported the adjusted loss per share of 32 cents, missing the analysts’ estimates for the adjusted loss per share of 18 cents. The company had reported 14.3% (13.1% in constant currency) decline in the adjusted revenue to $1.29 billion in the second quarter of FY 19, missing the analysts’ estimates for revenue of $1.34 billion, according to FactSet. The sales decline was comprised of an 11.6% comparable store sales decline, a 130 basis points related to 195 store closures since the second quarter last year and 140 basis points of negative foreign exchange impact. The primary driver of the sales decline was new hardware sales, which was down 41% year-over-year. Software sales declined 5.3% with declines across most categories, slightly offset by growth in the Nintendo Switch software and the release of the current year title in the Madden NFL franchise toward the end of the quarter.

Additionally, GME has repurchased $62.4 million or 12 million shares for the modified Dutch auction. The company also reduced outstanding debt by $51 million bringing the year-to-date total reduction in debt to $404 million.

For FY 19, GME expects adjusted earnings to be in the range of $1.15 to $1.30 a share. Analysts on average were projecting $1.61 a share for the full year, according to FactSet. The company is projecting the full year capital expenditures to be between $90 million and $95 million.

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