GameStop’s second-quarter earnings and sales missed Street expectations as it continues to struggle with the shift in game buying to online downloads and the rise of subscription services — including a new one from Apple.
On its earnings call, the retailer, which has more than 5,700 stores worldwide, announced it is on track to close from 180 to 200 “under-performing” stores globally by the end of the year. More store closures are being planned for the coming 12-24 months.
“We have a clear opportunity to improve our overall profitability by de-densifying our chain,” GameStop CFO James Bell said on the call. Bell added that while the closures expected by yearend are more opportunistic, “we are applying a more definitive, analytic approach, including profit levels and sales transferability, that we expect will yield a much larger tranche of closures over the coming 12 to 24 months.”
The videogame retailer reported a loss of $415.3 million, or $4.15 a share, compared to a loss of $24.9 million, or $0.24 a share, in the year-ago period. Adjusted losses per share were $0.32, missing analysts’ expectations of an adjusted loss per share of $0.18.
Total revenue fell 14.3% to $1.29 billion, also missing expectations. Same-store sales fell 11.6%. Sales in nearly every sector of the company’s business were down, with new hardware sales plunging 41.1%, reflective of recent announcements for a next-generation console launching in 2020, the company said. Digital sales decreased 11.2% to $227.2 million due to weaker title launches in the quarter, compared to last year.
“While we experienced sales declines across a number of our categories during the quarter, these trends are consistent with what we have historically observed towards the end of a hardware cycle,” said Bell.
GameStop has been struggling in its core videogame category as consumers increasingly opt to download games through their gaming consoles and online. And new competition looms: Apple will launch a videogame subscription service on Sept. 19, with a monthly fee of $4.99 a month. Google is rolling out a cloud-based gaming site in November.
The retailer has been working to deal with the changes in the market. Most recently, it announced plans to reinvigorate its stores by “cultivating innovative customer-centric opportunities to bring video game culture to life in every neighborhood.” Earlier this year, the retailer announced a series of partnerships in the fast-growing esport space, which involve live video game competitions, are growing at a breakneck pace.
“We are committed to acting with a sense of urgency to address the areas of the business that are critical to achieving long-term success and value creation for all our stakeholders,” stated GameStop CEO George Sherman. “We will set GameStop on the correct strategic path and fully leverage our unique position and brand in the video game industry.”
GameStop lowered its same-store sales forecast for the fiscal year and said it now expects sales at stores open at least 12 months to fall in the low teens. Previously, it had expected a decrease between 5% and 10%. It expects adjusted earnings of $1.15 to $1.30 a share. Analysts on average were projecting $1.61 a share for the full year, according to FactSet.