Gamestop Corporation (GME) has reported a 9.12 percent fall in profit for the quarter ended Oct. 29, 2016. The company has earned $50.80 million, or $0.49 a share in the quarter, compared with $55.90 million, or $0.53 a share for the same period last year. On the other hand, adjusted net income for the quarter stood at $50.80 million, or $0.49 a share compared with $57 million or $0.54 a share, a year ago.
Revenue during the quarter went down marginally by 2.83 percent to $1,959.20 million from $2,016.30 million in the previous year period. Gross margin for the quarter expanded 363 basis points over the previous year period to 36.15 percent. Total expenses were 94.96 percent of quarterly revenues, down from 95.50 percent for the same period last year. This has led to an improvement of 54 basis points in operating margin to 5.04 percent.
Operating income for the quarter was $98.80 million, compared with $90.70 million in the previous year period.
Paul Raines, chief executive officer, stated, “Our third quarter results were in line with the revised guidance we issued on November 2. While the video game business has underperformed recently, we are focused on maintaining our leading market position, especially during the holiday season, as well as driving diversification through the growth of Technology Brands, Digital and Collectibles. In aggregate, despite the softness in video games, I’m proud that our team was able to increase total operating earnings by nine percent year-over-year. As we look forward, we believe that we are well positioned to continue to drive strong free cash flow and return value to shareholders through a combination of share repurchases and dividends.”
For the fourth-quarter, Gamestop Corp projects revenue to decline in the range of 12 percent to 7 percent. Gamestop Corp projects revenue to decline in the range of 9.50 percent to 6.50 percent for the financial year 2016. The company forecasts diluted earnings per share to be in the range of $2.23 to $2.38 for the fourth-quarter. For financial year 2016, the company forecasts diluted earnings per share to be in the range of $3.65 to $3.80.
Working capital increases sharply
Gamestop Corporation has recorded an increase in the working capital over the last year. It stood at $207.70 million as at Oct. 29, 2016, up 69.27 percent or $85 million from $122.70 million on Oct. 31, 2015. Current ratio was at 1.10 as on Oct. 29, 2016, up from 1.05 on Oct. 31, 2015.
Cash conversion cycle (CCC) has decreased to 4 days for the quarter from 37 days for the last year period. Days sales outstanding were almost stable at 7 days for the quarter, when compared with the last year period.
Days inventory outstanding has decreased to 59 days for the quarter compared with 95 days for the previous year period. At the same time, days payable outstanding went down to 63 days for the quarter from 65 for the same period last year.
Debt increases substantially
Gamestop Corporation has witnessed an increase in total debt over the last one year. It stood at $814.30 million as on Oct. 29, 2016, up 135.35 percent or $468.30 million from $346 million on Oct. 31, 2015. Total debt was 15.57 percent of total assets as on Oct. 29, 2016, compared with 7.16 percent on Oct. 31, 2015. Debt to equity ratio was at 0.38 as on Oct. 29, 2016, up from 0.18 as on Oct. 31, 2015. Interest coverage ratio deteriorated to 6.68 for the quarter from 13.95 for the same period last year.
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