GameStop highlights the potential for store closings as part of its profitability push

GameStop Corp. (NYSE:GME) fell sharply in premarket action on Wednesday as investors digested the retailer’s Q2 earnings report. Revenue fell 31.2% year-over-year for the quarter that ended on August 3 to $798.3 million. EPS was $0.01 for the quarter, vs. -$0.09 consensus and -$0.03 a year ago.

In an SEC filing, GameStop (GME) disclosed that as part of its efforts to achieve sustained profitability, the company continues to evaluate its international assets and operations to determine their strategic and financial fit and to eliminate redundancies and underperforming assets. GME has also initiated a comprehensive store portfolio optimization review, which involves identifying stores for closure based on many factors, including an evaluation of current market conditions and individual store performance. “While this review is ongoing and a specific set of stores has not been identified for closure, we anticipate that it may result in the closure of a larger number of stores than we have closed in the past few years,” read the filing.

On Wall Street, Baird analyst Colin Sebastian said the GameStop (GME) results underscore the ongoing challenges to the company’s retail business model. Sebastian and has team still have limited confidence in GameStop’s (GME) ability to restore growth and improve profitability, but think a smaller store footprint with a modernized consumer experience may help improve the performance. “While retail shareholder dynamics are seemingly the only support to valuation and liquidity, bulls could also point to hardware and the expected release of GTA VI next year as catalysts,” wrote Sebastian.

Shares of GameStop (GME) were down 9.25% in the premarket session to $21.28.