GameStop weighing stock offering to fund transformation

GameStop is considering selling some of its shares, a move that would enable the video-game retailer to capitalise on the massive surge in its stock price this year.

In a filing with the Securities and Exchange Commission late Tuesday, the company noted that it has been evaluating since January whether to increase a US$100 million stock offering programme it established through Jeffries LLC in December.

The Grapevine, Texas, company said it has yet to sell any shares via the offering programme but is weighing doing so in order to help pay for a multiyear business- transformation plan. GameStop didn’t offer any other specifics about the potential timing or size of a stock sale.

GameStop shares vaulted 1,625 per cent in January as bands of smaller and novice investors communicating on social media hyped up the retailer’s stock in hopes of making big returns at the expense of hedge funds betting the shares would head lower. It is still up about 700 per cent this year within the US$180 band.

In the filing, GameStop acknowledged the stock’s “extreme” volatility this year, noting that the price run-up has often been “unrelated or disproportionate” to the company’s operating performance. GameStop warned investors that its shares may continue to fluctuate widely.

The SEC filing followed the release of GameStop’s fiscal fourth-quarter results, which fell short of Wall Street’s expectations. The company has been permanently closing stores and working to expand its e-commerce business as it adapts to the growing popularity of mobile gaming and video-game downloading.

Earlier this month, GameStop appointed a chief technology officer and hired executives to lead its customer care and e-commerce functions. It also named activist investor Ryan Cohen to lead the company’s efforts to drive more of its business online.

GameStop, the video game retailer at the centre of a social-media-driven investment frenzy, said it lost US$215 million in the 12 months ended January 30 as it dealt with pandemic-related shutdowns and moved to transform itself into a more online-focused company.

The company’s latest results, which fell short of Wall Street’s expectations, offered few positives to back up some investors’ belief that the struggling retailer is on track to turn its business around and perhaps justify its stock’s stunning run from around US$20 a share at the start of the year to north of US$480 by the end of January.

GameStop said global e-commerce sales made up 34 per cent of net sales in the fourth quarter compared with 12 per cent in the year-ago quarter. It also noted a 6.5 per cent gain in sales at stores open at least a year, a key retail industry metric.

But there was less encouraging news as well: the video game retailer announced it would suspend earnings guidance as it focuses on its bid to bring more of its business online. And in a break with the Wall Street norm, CEO George Sherman didn’t take any questions from analysts during a post-earnings release call. Sherman did not address the recent volatility in the company’s shares in his remarks.

The Grapevine, Texas, company reported net income of US$80.5 million, or US$1.19 per share, for the three months ended January 30. That compares with net income of US$21 million, or 32 cents per share, a year earlier.

The latest results include a nearly US$70 million tax benefit. Adjusted for that and other one-time items, the company’s earnings amounted to US$1.34 per share, versus US$1.27 a year earlier.

Revenue fell to US$2.12 billion, from US$2.19 billion. Analysts were expecting adjusted earnings of US$1.35 per share on US$2.21 billion in revenue, according to FactSet. For the full fiscal year, revenue dropped to US$5.09 billion from US$6.47 billion in the prior year.