On July 7, GameStop Corp. (NYSE: GME) announced the firing of CFO Mike Recupero, with immediate effect, as well as plans to cut an unspecified number of staff to right size the company. Diana Saadeh-Jajeh assumes the CFO role; she will continue to serve as the company’s Chief Accounting Officer and was GameStop’s interim CFO briefly in the spring of 2021. The staff cuts, while unpleasant, are probably not too surprising as a number of companies across a wide spectrum of industries are either curtailing hiring or implementing layoffs.
On the other hand, both the circumstances surrounding Mr. Recupero’s abrupt termination — not for cause — and the details of how it was carried out are atypical (read suspicious) for the CFO of a major company. Keep in mind that by anyone’s estimate, GameStop maintained a buoyant stock market valuation throughout his tenure.
First, the language in the 8-K announcing the news was quite brisk: GameStop, “terminated the employment of Michael Recupero as its Chief Financial Officer effective immediately. Subject to the execution of a release, Mr. Recupero will be entitled to certain remuneration, rights and benefits associated with a termination without Cause pursuant to his offer letter. Mr. Recupero is not entitled to any severance payments beyond what is set forth in his offer letter from the Company.”
Terminating a CFO immediately is especially unusual because he/she knows “where the bones are buried.” For example, the CFO knows the specific financial steps the company took to address various issues six months ago. Not retaining that institutional knowledge for at least a time seems like a strange corporate policy.
Mr. Recupero has been an accomplished executive. He was recruited with much fanfare from Amazon.com, Inc. (NASDAQ: AMZN) last summer, along with current CEO Matthew Furlong. Mr. Recupero worked in various financial roles at Amazon since 2004, most recently as CFO of Amazon’s North American Consumer business — quite an important position.
Given all this, it is difficult to guess what issue was so important that Mr. Recupero was fired, without cause, abruptly. It seems likely the issue was something more than a personality conflict.
Despite its robust valuation, GameStop’s fundamentals cannot be considered strong. Its cash burn rate (defined as negative operating cash flow plus capital expenditures) in the April 2022 quarter ended April 30, 2022 was nearly US$315 million. The company’s cash fell to US$1.035 billion as of April 30, 2022 from US$1.27 billion on January 31, 2022. The cash balance did not fall as much as implied by the quarter’s cash burn rate because GameStop sold US$77 million of digital assets in the quarter.
| (in millions of US dollars, except for shares outstanding) | Twelve Months Ended April 30, 2022 | 1Q FY23 | 4Q FY22 | 3Q FY22 | 2Q FY22 |
| Revenue | $6,112.3 | $1,378.4 | $2,253.9 | $1,296.6 | $1,183.4 |
| Adjusted EBITDA | ($361.7) | ($125.5) | ($126.9) | ($79.8) | ($29.5) |
| Adjusted Operating Income | ($468.7) | ($153.7) | ($160.7) | ($102.9) | ($51.4) |
| Adjusted Diluted EPS | ($6.1) | ($2.08) | ($1.86) | ($1.39) | ($0.76) |
| Operating Cash Flow | ($719.4) | ($303.9) | ($110.3) | ($293.7) | ($11.5) |
| Cash – Period End | $1,035.0 | $1,035.0 | $1,271.4 | $1,413.0 | $1,720.4 |
| Debt – Period End | $617.0 | $617.0 | $649.0 | $667.8 | $701.0 |
| Fully Diluted Shares Outstanding (Millions) | 75.9 | 75.9 | 75.9 | 75.9 | 72.6 |
As is the case with many high valuation stocks, GameStop has lost around half its stock market value since November 2021. While perhaps tempting to think this decline has created an opportunity for speculative investors, the significant uncertainties surrounding the company, particularly now in relation to the firing of its CFO, seem to argue otherwise.
GameStop Corp. last traded at US$128.54 on the NYSE.
Information for this briefing was found via Edgar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
