It’s been no secret that GameStop has been hit by hard times. Sales are down, competition is rising, and no one wanted to buy them. I’ve written about the challenges they have faced many times in this column.
Well, the bad times are continuing.
GameStop recently reported their Q3 results covering from August 4th to November 2nd. Some of the numbers may surprise you, but a lot of the reasons and trends behind them probably won’t. Collectibles have been a bright spot for the chain, and they continue to do so. On the other hand, since this is before the holiday blitz and with Sony and Microsoft launching their next gen console by holiday season 2020, hardware sales were down. Still, the numbers aren’t good: sales across the globe decreased by about 25%, including comparable store sales going down by 23%. Technically, they lost less money than a year ago ($83 million versus $490 million), but when you only look at operating costs, they lost over $40 million versus making a $50 million profit in Q3 2018.
Analysts expected GameStop to lose about $.11 a share, but instead they lost $.49 a share, and instead of earning $1.15 to $1.30 per share, GameStop is now predicting $.10 to $.20.
The press release breaks down how the major departments changed:
Overall, that’s an ouch. The Motley Fool also points out that the collectibles category — which did experience growth – may be slowing down. So even that bit of good news could be a warning sign.
Despite the bad news, GameStop’s CEO said, “We remain on track to achieve our $200 million annualized operating profit improvement goal, by 2021 and we believe our strategic initiatives will enable to us to achieve our long-term growth and profit objectives as we fully leverage our unique leadership position and brand in the video game space.” They’ve also been buying back a lot of their stocks, which tends to boost stock prices and return money to current shareholders.
Still, while we won’t know how their holiday season will have turned out for quite a while, even GameStop knows that it is in for a rough year ahead until the PlayStation 5 and Xbox Series X launch. Sure, there will be some AAA titles that will attract customers (Final Fantasy VII Remake, The Last of Us Part II, Animal Crossing: New Horizons), but 2020 likely won’t pick up until late Q3/early Q4.
The major problem is, of course, the shift to digital games. This eliminates much of the need to come into a store or even GameStop.com. More significantly, GameStop can’t buy back a digital game to resell like it can with a physical copy, and selling used hardware and software has been a core business block for the company. As gamers and companies switch distribution methods, GameStop has been trying to survive this shift.
Which is why they’ve been working on a plan called GameStop Reboot. GameStop has laid off employees and will close more stores, and they will, according to IGN, “redesign stores to focus on live events, retro games, and esports”.
But some analysts see much bigger problems than just a dull video game sales period. Timothy Green of The Motley Fool said, “GameStop will get a boost next year when the new game consoles launch, but in the long run, it’s difficult to imagine a scenario where a nationwide retailer of physical video games can survive.” In a piece for Seeking Alpha, Taylor Dart wrote that, about GameStop’s argument that same-store metrics shouldn’t be the indicator of GameStop’s financial health, “While I’m not going to infer that GameStop is a Blockbuster Video 2.0 as this is a bold statement, it’s worth noting that this is quite similar to what we saw with Blockbuster Video before things really hit the fan.”
So really, if GameStop continues to have large freefalls from the previous years, they may not even have the money for GameStop Reboot. Personally, I think they could go a long way without a reboot but an upgrade to things like their inventory management system. It seems like quite a few of my orders end up getting canceled due to stores not actually having products in stock despite the site saying they do. And I continue to hate their website redesign and barely even check it out anymore since I find it so user unfriendly.
Still, I’d hate for them to have to go through a massive downsizing — or worse. There will be more store closings within the next two years, and how many will close their doors will likely rely on how GameStop Reboot pans out and if PlayStation 5 and Xbox Series X can woo early adopters. But a combination of market trends (digital games) and their own missteps (mobile phone business) have led them here, they can’t just reload an earlier save like in a video game in order to continue. It’s going to be a tough ride for the chain, and the question is: for how long?