GameStop Corp. GME is ready to profit from its phenomenal increase in stock prices, triggered by the acclaimed commercial frenzy in recent months. This game retailer will be selling up to 3.5 million shares and plans to use the proceeds to support its ongoing organizational transformation, as well as strengthen its balance sheet. However, investors do not seem satisfied with the announcement, as stocks started to fall in yesterday’s pre-market session. The stock finally closed down 2.4% on April 5.
In a separate statement, the company announced preliminary sales figures for the first nine weeks of fiscal year 2021. Let’s take a closer look at these developments.
The offer of shares is a prudent measure
GameStop will be selling up to 3,500,000 common shares through a “on the market” (“ATM Offer”) share offering program. The stock offering will be carried out periodically, through its sales agent – Jefferies LLC. Industry experts say the company’s decision to sell shares will help it take advantage of the huge price increase seen since January, due to potential short-term events. Notably, the company’s stock has soared 918.3% in the past three months, compared to the sector’s 39.9% increase.
Regarding the ATM Offer, the company did not provide a timetable for the completion of the program. Management stressed that the shares offered in this program will not exceed US $ 1 billion in gross aggregate revenue. The net proceeds will be used to further accelerate its transformation, as well as for general corporate purposes and the strengthening of its balance sheet.
We note that the company is making prudent efforts to accelerate growth, especially by expanding digital capabilities. To accelerate business transformation, GameStop is restructuring its board and has formed a Strategic Planning and Capital Allocation Committee. Since the formation of this committee, the company has appointed several board executives with significant experience in e-commerce, customer service and technology. In addition, the influx of money through the latest offering of shares will further strengthen the company to undertake radical transformation initiatives. Such moves are expected to help the company evolve into a strong and digitally advanced player in the gaming industry.
Preliminary sales figures seem encouraging
GameStop recorded total global sales growth of almost 11% in the first nine weeks of the first fiscal quarter of 2021, which ended on April 3, 2021, compared to the nine-week period ended on April 4, 2020.
In February, total global sales increased by approximately 5.3%, for the four-week period ended February 27, 2021, compared to the four-week period ended February 29, 2020. In March, global sales totals increased by approximately 18% for the five-week period ending on April 2, compared to the five-week period ending on April 4, 2020.
Notably, the company has achieved sales growth, despite the challenges related to the COVID-19 pandemic. Management pointed out that during the first nine weeks of fiscal year 2021, the company witnessed limited operations, mainly in Europe, due to government-imposed restrictions led by a pandemic. In addition, the company operated with a 13% drop in its store base, due to strategic store optimization efforts. In addition, the company reported that preliminary sales figures may change, as they are subject to closing and adjustment processes.
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