GameStop stock declined Wednesday after it reported disappointing quarterly results. (Photo by ... [+]
On GameStop’s quarterly earnings call late Tuesday, the top video game retailer’s newly minted management team spoke with “urgency” about making the company relevant in the world of digital gaming.
CEO George Sherman, who has been in his post only since April, acknowledged that the way consumers play games is changing and that both hardware and software demand face “near-term disruption” ahead of Microsoft and Sony coming out with new game consoles next year.
“It was important for GameStop to transform and evolve to remain a viable player in our industry,” he said. “It's a tremendous challenge. … We are committed to creating a social and cultural hub of gaming.”
He has assembled a new management team, is inking more partnerships with esports teams and players, has revamped the company’s website to push online sales and is testing store concepts, including those that feature competitive sessions among home-grown esports leagues. He’s also introducing ways gamers can try new titles before they buy them.
The company is also reducing underperforming items to make stores less cluttered and is pushing more profitable products and doubling down on its Funko action figures and other collectibles business, a sales bright spot.
To shore up its profit, GameStop, which has more than 5,700 stores globally, said Tuesday that it plans to shut as many as 200 underperforming stores by the end of this fiscal year. It has also eliminated its quarterly dividend and has sold its Spring Mobile business, which operated over 1,200 AT&T-branded wireless stores, to boost its coffers.
But there are skeptics on whether management can deliver on its turnaround plan. GameStop shares plunged 12% to $4.46 early Wednesday afternoon—a 90% slide from a peak about four years ago—after it reported a bigger-than-expected fiscal second-quarter loss and sales drop and lowered its revenue outlook for the year.
“We recognize that there was a need to rebuild credibility with the investment community and some of our stakeholders,” Sherman said.
Total sales declined 14% to $1.3 billion in the quarter that ended August 3. Comparable-store sales dropped nearly 12%.
Its bread-and-butter categories, which together accounted for about two-thirds of the company’s business in the quarter, all declined: New video game hardware sales slumped 41%, game software sales dropped 5.3% and pre-owned video game sales slid 17.5%.
That offset the 21% increase in its collectibles business, the 15th straight quarter of growth but still just 13% of total business.
As much as GameStop is pushing game downloads and other online sales, it still has a ways to go. Second-quarter digital sales actually declined slightly from a year earlier and represented just 2.8% of total business.
GameStop also can’t escape the reality that its major suppliers, including Microsoft and Sony, are increasingly pushing their own direct-to-consumer game sales and downloads. Meanwhile, Apple, Google and Microsoft are among the companies that have announced their own subscription or streaming gaming services that give players more options than ever. There are also free-to-play games like Fortnite (although GameStop is seeking to capitalize by selling Fortnite-related action figures and other products).
On the retail front, GameStop’s bigger rivals, including Amazon, Walmart and Best Buy, still loom large, and their gaming products can be part of consumers’ larger shopping baskets for other things.
GameStop remains “important to video game enthusiasts, (but) these other competitors offer ease of access and e-commerce capabilities at attractive prices,” Moody’s analyst Adam McLaren said in a report in June, adding that convenience and low prices are helping GameStop’s bigger retail rivals lure an increasing number of casual gamers. “GameStop faces a litany of growing business risks.”
The company’s management still faces a tall order.
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