Shares in GameStop (GME) rose as much as 5% in after-market U.S. trading on Monday, after the video game retailer told shareholders it made “significant progress” on advancing cost-cutting plans.
As a result of its strategic turnaround plan, GameStop said it exited the full year 2019 with about $500 million in cash after generating $62.3 million in adjusted operating income, despite a challenging sales environment. Debt was reduced by $401 million and share repurchases amounted to $199 million by using the proceeds from the sale of non-core business units.
In addition, GameStop said that it cut adjusted full-year 2019 expenses by $130.4 million. Inventory was reduced by 31% at FY2019 year-end, which enabled a 160 basis point gross margin expansion and “significantly” enhanced GameStop’s working capital and overall balance sheet strength, the company said.
Furthermore, the company announced that it begun to wind down its underperforming operations in Denmark, Finland, Norway and Sweden.
In the run-up to its annual shareholder meeting in mid-June, GameStop urged shareholders to discard any white proxy card received from dissident stockholders and use the blue proxy card to vote “for all” of GameStop’s 10 director nominees.
Shareholders and activist firms Hestia Capital Partners, LP, with a 7.2% stake and Permit Capital Enterprise Fund, LP, are asking for Hestia’s founder, Kurtis Wolf, to join the company’s board as a stockholder representative. That’s in addition to the demand that GameStop addresses its cost structure, increases liquidity, aligns management’s compensation with performance, and pursues an innovative strategic plan.
The video game retailer slammed the demands claiming that the dissident shareholders were running a “costly and distracting proxy fight, founded on baseless claims and significant misrepresentation of facts, in an attempt to remove two highly qualified independent directors who bring valuable experience and continuity to the Board”.
GameStop shares have plummeted 27% this year driving analysts’ bearish outlook on the stock’s prospects. Out of 5 analysts covering GameStop, 3 rate it as hold, and 2 say sell, giving the stock a Moderate Sell consensus. The $3.81 average price target also suggests shares can pullback another 17% over the coming year. (See GameStop stock analysis on TipRanks).
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