GameStop gains as lower costs blunt turnaround worries

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(Reuters) -GameStop shares reversed course to gain 2% on Thursday as cost cuts at the brick-and-mortar videogame retailer offered some relief to investors worried about its slowing pivot to e-commerce.

The stock had dropped as much as 8% in early trading as the company’s third-quarter revenue missed market expectations on Wednesday, underscoring the turnaround challenge faced by top investor Ryan Cohen, who became CEO and chairman in September.

But a 24% decline in expenses helped GameStop (NYSE:GME)’s adjusted earnings per share to break even, compared with expectations of 9 cents loss.

“Costs remain a bright spot for GME,” Jefferies analysts said, pointing to a 156 basis point rise in gross margins that was driven by lower freight expenses.

The company has in recent months slowed its aggressive shift to e-commerce and instead relied more on brick-and-mortar stores where customers can also pick up online orders.

Once a mainstay of American malls, GameStop’s business has declined in recent years as more people purchase games online and it faces competition from e-commerce players.

“Fundamentally the business needs a radical rethink,” said Russ Mould, investment director at AJ Bell.

“GameStop faces intense competition from the likes of Amazon (NASDAQ:AMZN) and Ebay (NASDAQ:EBAY), and it needs to make its large store estate more appealing, which could cost a significant amount of money.”

Shares of the company have lost nearly a fifth of their value this year after shedding 50% in 2022 compared with the multifold growth seen during the pandemic.

The current average recommendation for GameStop is “sell,” according to five analysts polled by LSEG. The median target price is at $10.50, down from $13 a month ago.