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GameStop problems continue in Q2 2019

Gamestop Office Building

Global sales for GameStop dropped by 14 percent year-on-year for Q2 2019 to $1.3 billion. This blow comes after the company saw its biggest full-year loss in history last year.

Almost all categories were down for GameStop in Q2. New hardware sales were down by 41 percent, new software sales were down by 5 percent, accessories were down by almost 10 percent, and pre-owned sales were down by 18 percent, all compared to the same period last year. The only category to see growth was collectibles, which was up year-on-year by 21 percent.

GameStop’s net loss for Q2 2019 was $415.3 million, a huge increase from the loss of $24.9 million last year. $400.9 million of GameStop’s $415.3 million net loss was made up of ‘other items’ and impairment charges. The company’s adjusted net loss was $32 million, which is still up compared to $10.2 million last quarter.

Jim Bell, CFO for GameStop, said that most of the losses seen in this last quarter can be attributed to the end of the current console cycle. He maintains that the company has seen similar losses on this scale towards the end of previous console cycles. Moving forward, Bell explains, GameStop needs to produce meaningful cash returns and continue to manage the underlying businesses. In addition, the company’s balance sheet must be maintained and strengthened, while they invest in strategic initiatives for the future.

For a long time now GameStop has been talking about their plan to reboot the company. This plan is designed to optimise the core of the business, opening up social gaming hubs for customers, building a larger digital platform, and improving partnerships with vendors. As part of this reboot, 50 field leaders were let go in August, and 120 further employees were also let go across multiple locations last month. Some of these 120 employees were part of the staff at the beloved GameInformer magazine and website.

GameStop’s reboot plan also involved folding the ThinkGeek business into the main GameStop brand, and creating new conceptual stores for areas of gaming interest such as esports and retro games.

It seems as though this reboot plan is already underway. During the company’s Q2 earnings call it was also announced that between 180 and 200 stores would be closing by the end of 2019 due to underperformance. These stores are from locations around the world, as opposed to one particular region.

Bell pointed out during the earnings call that 95 percent of the company’s 5700 stores were profitable. This roughly shows that around 285 GameStop stores are running at a loss, which is why they are on the firing line with the planned company reboot. He went on to say that while these store closures were more opportunistic due to lack of profit, in the future GameStop will be taking a more analytical approach to store profit levels and sales transferability. Bell expects this will yield a greater number of store closures over the next 24 months.

During the Q2 earnings call the subject of the next console cycle was broached by GameStop CEO George Sherman. He explained how he expects GameStop’s sales over the course of the new hardware generation to be a mixture of digital and physical. Specifically he said that games will more than likely continue to launch both physically and digitally over the course of the next generation, and GameStop will have a piece of both businesses.

Sherman went on to say that in the past GameStop had a clear preference for physical sales. In the future, however, it’s being made very clear that the company will have no preference, and offer customers both choices. As a step in the right direction, GameStop is working on making their own digital products far more streamlined.

The concern over GameStop’s business in the future regarding digital sales is understandable. With Sony and Microsoft offering games on their own digital storefronts, there’s less and less reason to purchase a physical copy of a game. Furthermore, with publishers such as EA and Ubisoft offering games digitally via their own games passes, it’s becoming more natural for consumers to pay for a monthly subscription for titles over individual purchases.

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