GameStop Loses Credits as Sales Drop 30.2% in Q3 • The Toy Book

Source: GameStop

Another quarter, another buzzword-fueled song and dance from GameStop.

The Texas-based retailer of video games and lifestyle products reported third quarter earnings that missed the mark as overall net sales dropped 30.2% vs. the same period last year. The drop comes in tandem with record growth for the video game industry as more players from all age groups have gotten into the game during the continued spread of the COVID-19 pandemic. Same-store comp sales fell 24.6% during the same period that the U.S. video game industry grew 24%, according to The NPD Group. The bright spot is that GameStop’s digital sales grew 257%.

During the earnings statement and subsequent call with investors on Tuesday, GameStop CEO George Sherman continued to lean on its long-in-progress “transformation” into what it’s now calling “a frictionless digital ecosystem to position GameStop as a digital-first omnichannel retailer.”

“Our third quarter results were in-line with our muted expectations and reflected operating during the last few months of a seven-year console cycle and a global pandemic, which pressured sales and earnings,” Sherman said. “That notwithstanding, we continued to significantly advance our strategic objectives of creating a digital-first, omnichannel ecosystem for games and entertainment and optimizing our core operations. We begin the fourth quarter with unprecedented demand for new video game consoles that launched in November, which drove a 16.5% increase in comparable store sales for the month, despite being closed on Thanksgiving Day and the impact of COVID-19 related store closures, which affected most of our European footprint.”

While demand for new consoles is extreme, availability is low and traditionally, video game hardware is a low margin category that drives high sales at POS with little meat on the bone for the bottom line. By the end of this year, GameStop will have closed 1,000 stores since the company began what Sherman calls “the company’s optimization journey” in the middle of last year. Thus far, the company has been shoring up its balance sheet through cost-cutting measures and inventory reductions rather than building a loyal customer base.

With both the Playstation 5 and the Xbox Series X offering disc-less options during the new console cycle, the same question that analysts have been asking for years is back at the forefront: What will GameStop’s place be when gamers have no need for physical game software and built-in, proprietary digital storefronts exist within every console?

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