GameStop shares fall after lowering guidance; Cramer says strategy not working

Shares of GameStop plunged Wednesday after the company said its third-quarter earnings results would disappoint based on underperforming sales of new videos games. It also lowered its outlook for the year.

On Wednesday, GameStop said in a preliminary earnings report it expects revenue of $2 billion, resulting in a same-store store sales decline of 6 percent to 7 percent and diluted earnings per share in the range of between 45 cents and 49 cents. Analysts expected a decline of 1 percent and earnings of 56 cents a share on revenue $2.08 billion.

It revised its 2016 outlook of diluted earnings per share to a range of between $3.65 and $3.80, and a comp stores decline percent to 6.5 percent to 9.5 percent, below its prior forecast of between $3.90 and $4.05 a share and comp sales decline of 1.5 percent to 4.5 percent.

Shares of the company shed 11 percent on Wednesday, closing at $20.93.

CNBC's Jim Cramer said on "Squawk on the Street" that some investors had hoped CEO Paul Raines attempts to diversify GameStop stores would eventually turn things around. Cramer said it's not working.

"There were a lot people that kept hoping that this thing would be revised upward, and instead it went the other way," Cramer said.

CEO Paul Raines said in the statement GameStop expected new titles in October to provide a catalyst for new software sales but the titles underperformed its forecasted sales. He said the company remains confident that its diversification strategy "will provide long-term growth and shareholder value."

GameStop is expected to report its third-quarter earnings on Nov. 22. GameStop's stock is down more than 25 percent year to date.

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