GameStop Tests Reddit Army With Share Sale Plans After Earnings Miss

GameStop's army of retail investors fueled by the WallStreetBets chatroom on Reddit could be asked to step-up and support a major capital increase in the coming weeks.
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GameStop  (GME) - Get Report shares tumbled in pre-market trading Wednesday after the retailer provided little information on either its near-term earnings prospects nor its planned shift to digital sales even as it hinted it may use the recent Reddit-fueled surge in its stock price to raise new capital. 

GameStop posted its ninth consecutive quarterly sales decline late Tuesday with a topline of $2.122 billion that missed Street forecasts. Gross margins shrank and same store sales were largely unimpressive.

The group did, however, see a 175% surge in e-commerce sales and hired former Amazon  (AMZN) - Get Report executive Jenna Owens drive its online shift, but provided scant details as to how and when it might happen; company executives not only decline to provide near-term profit forecasts, but they also refused to take questions from analysts in what was a packed post-earnings conference call.

The major after-hours move for the shares, however, came from a 10-K filing with the Securities and Exchange Commission shortly after its fourth quarter earnings, in which the company said that while it wasn't aware of any "material changes in our financial condition or results of operations" that would explain the stock's 800% gain over the past two months, it has been "evaluating whether to .. potentially sell shares of our Class A Common Stock under the increased ATM Program during the course of fiscal 2021, primarily to fund the acceleration of our future transformation initiatives."

GameStop had previously filed for a $100 million share sale program in late December, and may have balked at using it during the peak of the Reddit/WallStreetBets-fueled rally until it was able to update investors on its holiday quarter earnings. 

GameStop shares were marked 20.5% lower in early afternoon trading Wednesday to change hands at $144.30 each. Over the past month, the stock has traded in a range of around $90 a share to as high as $300, while short interest in the group remains elevated at around 15% of the outstanding float, according to recent data from S3 Partners. 

In the group's first earnings report since its meteoric share price rise, which began in late January, GameStop said adjusted profits for the three months ending on February 1 came in at $1.34 per share, up around 5.5% from the same period last year and one penny shy of the Street consensus forecast.

Group revenues, GameStop said, fell 3% from last year to $2.122 billion, just shy of analysts' estimates. Same store sales were up 6.5% while e-commerce sales surged by 175%.

GameStop said that "as a result of prolonged pandemic related store closures which began in March 2020, which will impact the calculation of comparable store sales this year, the Company does not currently intend to report this metric in fiscal 2021."