GameStop’s tough 2019 continues: the video game retailer posted a dismal Q3 earnings report in which net sales sank 25.7% to $1.4 billion and comparable sales dipped 23.2%. In the morning after the report’s release, GameStop stock plummeted as much as 19.6%.
The company has been on a downward spiral in recent years as fewer shoppers buy physical copies of video games, whether in stores or online, instead opting to buy them digitally through their consoles. In the quarter, GameStop saw a net loss of $83.4 million, compared to net losses of $488.6 million in Q3 2018.
GameStop is operating within the tail end of the current gaming console lifecycle, in that most shoppers aren’t buying consoles until the next generation of hardware from Microsoft and Sony is released in late 2020. George Sherman, who landed the CEO role at the troubled retailer in April, said on a conference call that the current console cycle has entered a “commoditization phase,” which means cut-rate pricing to entice bargain shoppers. Reflecting this lifecycle:
- New hardware (gaming console) sales decreased 45.8%;
- New software (video games) sales decreased 32.6%;
- Accessories sales decreased 13.4%;
- Pre-owned video game sales declined 13.3%; and.
- Collectibles sales increased 4.3%.
The weak growth in the collectibles category is not a good sign, since GameStop has leaned on collectibles to bolster its in-store experience, especially as the retailer seeks to become more of a cultural hub for gamers. In Q2, collectible sales increased 21.2%.
Additionally, while sales of pre-owned video games are still GameStop’s largest source of profits, sales in that category have seen double-digit declines for the last six consecutive quarters.
The companyannounced a “reboot” of its business in September to save costs, with plans to close between 180 to 200 underperforming stores by February 2020. GameStop currently operates 5,600 stores in 14 countries.
Despite an updated outlook that tracks the retailer to see comparable sales declines in the “high-teens” instead of the initially projected “low-teens,” GameStop remains on track to achieve its $200 million annualized operating profit improvement goal by 2021, largely due to the cost cuts.