Dive Brief:
- GameStop's second quarter sales fell more than 14% to $1.3 billion, with comparable sales down 11.6%. Gross profit fell by more than $70 million, and goodwill impairments drove the gaming retailer's operating income deep into the negative, with a $446.7 million operating loss for the quarter.
- GameStop's Q2 net loss expanded more than 16 times over, to $415.3 million. Even adjusting for the goodwill impairments (which stemmed from a stock price drop), the company's earnings missed FactSet analyst consensus estimates and sent the retailer's stock down 15% in after-hours trading, according to MarketWatch.
- In announcing its earnings, the retailer also outlined key tenets of its strategic plan, dubbed "GameStop Reboot." The plan hinges on making GameStop's core business more efficient, turning itself into a cultural hub for gaming, building out a digital platform and seeking out higher-margin revenue streams through its vendor partnerships.
Dive Insight:
Each quarter seems to raise the urgency level of GameStop's transformation efforts. Its dreadful Q2 succeeds a first quarter that brought a 13% drop in sales.
Put bluntly, GameStop faces irrelevance, even possible obsolescence. As game sales and formats drift toward digital channels, the risk is that GameStop becomes the next Blockbuster or Toys R Us. Its recent performance shines a light on that risk, which makes executing a transformation all the more important and pressure-filled.
CEO George Sherman detailed the retailer's go-forward strategy in Tuesday conference call with analysts. The company aims to streamline its SKUs and pricing, restructure costs, add higher-margin categories, forge more exclusive packages with vendors, pushing its private label business forward and expanding more into PC gaming, Sherman said, according to a Seeking Alpha transcript.
The retailer is also closing stores as it adjusts to declining sales. CFO Jim Bell told analysts Tuesday that GameStop is on pace to close 180 to 200 underperforming stores across its business by the end of fiscal 2019. These he calls "opportunistic" closures. A new analytic approach, which looks at profit levels and sales transferability, would likely "yield a much larger tranche of closures" over the next year or two, Bell said.
As it looks to capitalize on its expertise, GameStop is also trying to fashion itself as a hub for gamers. To that end, the company is testing an experiential concept that includes a try-before-you-buy service and e-sports focus. GameStop also just launched a rebooted webpage, and is redesigning its PowerUp rewards program, Sherman said.
In short, the company is throwing the kitchen sink at its many weak spots. Fortunately the company has time, financially. Its long-term debt stands at $419.1 million, cut almost in half from a year ago. And despite its income losses in Q2, GameStop managed to buy back $62.4 million worth of shares, in a boon to stockholders.
