Dive Brief:

• As GameStop works toward a potential sale, possibly to private equity firms Sycamore Partners and Apollo Group, Jeffries analyst Stephanie Wissink noted on Wednesday that the retailer's "near all-time low valuation coupled with high free cash flow and increasingly flexible lease terms makes it a more attractive opportunity now."

• While GameStop is troubled by falling sales, hard versions of games still provide play superior to streaming versions, and the retailer has mitigated its struggles by offering digital, tech brands and collectibles that carry gross margins over 30%, according to the Jeffries note, which was emailed to Retail Dive.

• Interim CEO Shane Kim on Thursday confirmed the exploration of a sale. For its second quarter, GameStop on Thursday also reported a 2.4% global sales decline to $1.65 billion and a 0.5% consolidated comparable sales decline (which included a 2.4% increase in the U.S. and a 6.4% decrease internationally), as the company's net loss in the quarter reached $24.9 million.

Dive Insight:

The optimism of Jeffries researchers aside, analysts hold widely differing views on GameStop's potential.

In the quarter released Thursday, new hardware sales rose 20.1%, driven by the launch of the Xbox One X and continued strong sales of the Nintendo Switch and PS4.  But new software sales fell 18.5% primarily due to the lack of significant title launches during the quarter, and pre-owned sales fell 9.9%. E-commerce sales rose 15.3% to $255.9 million, excluding revenues from last year's sale of gaming portal Kongregate, or fell 13.5% to $40.2 million including that sale.

The retailer has diversified into areas beyond games, and that has achieved good results. Second quarter collectibles sales rose 15.7% to $141.7 million, and Technology Brands operating earnings rose 35.3% to $20.3 million despite a 10.3% decline in sales to $168.9 million from store closures. But the opportunity for many more such moves may be narrowing as mobile hardware sales missed expectations during the previous holiday season. 

On Thursday, Kim told analysts that the company is in search of a permanent CEO, but wouldn't make a final decision until a strategic review of the company is complete. "We are the market share leader in the video game industry, we have a strong business model and we generate significant cash flow, all of which makes us a compelling and attractive investment," he said, according to a transcript from Seeking Alpha.

Kim, a former Microsoft executive who has served on GameStop's board since 2011, has made it clear that he's not going to be the company's permanent CEO. This summer, GameStop appointed him in the interim after Michael Mauler left just months after being promoted to the CEO spot. Mauler had replaced J. Paul Raines, who left to undergo treatment for an illness and died in March. 

A possible sale to private equity holds some risk in the long-term. Many PE-owned retailers — among them Toys R Us, Payless, Gymboree, Claire's Stores, The Limited, Nine West and others — have resorted to Chapter 11 with debt leftover from leveraged buyouts. While there have been some success stories for PE-owned retailers, including Burlington and Dollar General, the debt from leveraged buyouts often leaves little room for error.