Tide Turns On Big Tech

Shareholders of GameStop were optimistic heading into today’s earnings results, with shares sitting just below their year-to-date highs. However, the after-hours news was unexpected, and shares are plummeting. Let’s discuss what happened. 👇

The company’s first-quarter adjusted loss per share of $0.17 on $1.24 billion in revenues. That compared to a $0.52 per share loss and $1.38 billion in revenue a year ago.

Some other stats worth noting include: 📝

• Selling, general, and administrative expenses (SG&A) fell to 27.9% of net sales vs. 32.8% last year
• Cash, cash equivalents, and marketable securities totaled $1.31 billion
• Long-term debt remains limited to one low-interest unsecured loan

The company’s sales declines have slowed to a crawl, and its efforts to reduce costs are helping improve earnings. Despite that progress, the board is clearly unhappy with how quickly the turnaround strategy is taking place.

That leads to today’s most important news, the company has fired CEO Matthew Furlong and appointed Ryan Cohen as executive chairman.  😮

GameStop did not provide a reason for the CEO shakeup, nor did it host an earnings call…simply referring shareholders to its 10-Q filing. Ultimately, that filing stated, “We believe the combination of these efforts to stabilize and optimize our core business and achieve sustained profitability while also focusing on capital allocation under Mr. Cohen’s leadership will further unlock long-term value creation for our stockholders…”

There remains a lot of uncertainty about what all this means. Ryan Cohen’s involvement in GameStop and other “meme stocks” has been controversial due to his mixed success in creating long-term value and unorthodox methods. However, with his investment firm RC Ventures holding an 11.9% stake in the company, he has a vested interest in staging a turnaround.

As for what he’ll be doing day to day? The filing says his responsibilities include capital allocation, evaluating potential investments and acquisitions, and overseeing the managers of GameStop’s holdings. He also made several other leadership changes to manage the other aspects of the role that are less of a priority. 👨‍💼

Ultimately, the surprise shakeup left some $GME shareholders feeling uneasy. Shares are currently down 20% after hours as investors assess the situation. 🤔

Last quarter some signs emerged that packaged foods companies were reaching the limit of price increases as consumers struggle with inflation. That concern escalated this quarter, with a variety of companies citing higher costs and weakening demand.

Let’s see if Campbell Soup and United Natural Foods were able to buck that trend. 👀

We’ll start with United Natural Foods, which we discussed in March when the stock fell 28% on rising costs. Today, the stock experienced a similar decline, falling nearly 30% before rebounding to close down 15%. 😮

The organic and natural foods distributor reported adjusted earnings per share of $0.54 on revenues of $7.507 billion. While revenues were essentially in line with expectations, its earnings were $0.11 shy of the $0.65 cents Wall Street anticipated.

The company continues to face a challenging operating and economic backdrop. That contributed to lower inflationary benefits primarily related to reduced procurement gains and higher shrinkage. Those factors ultimately pushed gross margins down roughly 60 bps YoY, which is significant for a tight-margin industry. 🔻

Executives reduced their fiscal year adjusted earnings per share forecast from $3.05-$3.90 to $1.80-$2.30. Their adjusted EBITDA forecast also fell from $715-$785 million to $610-$650 million.

$UNFI shares hit their lowest levels since January 2021, closing down 15%. 📉

Unfortunately, Campbell Soup did not fare much better.

The packaged-food conglomerate reported adjusted earnings per share of $0.68 on revenues of $2.229 billion. Earnings were $0.03 above expectations, while revenues came in just shy. 🥫

While the top-line numbers look good, investors are concerned about what they see under the surface. The segment operating review from its press release indicates that all of the net sales growth has come from price increases.

Below, the volume and mix section shows consumers are buying fewer total items and more lower-margin items. For the current quarter, those declines were offset by double-digit price increases. 👇

However, the concern remains that Campbell’s and its peers may be reaching the limit of what consumers can tolerate. And it appears that executives are remaining somewhat cautious about the consumer too. ⚠️

Looking ahead, they expect fiscal-year earnings of $2.95 o $3.00, shy of the $3.01 consensus. Meanwhile, fiscal 2023 revenue growth of 8.5% to 10% YoY implies roughly the $9.37 billion that analysts estimated. Again, that growth will be driven by price increases, not volume and mix.

$CPB shares fell nearly 9% on the day on the back of these concerns. 👎