GameStop Narrows Q2 Loss; Sales Fall 27%

Video game retailer GameStop Sept. 9 reported a second-quarter (ended Aug. 1) loss of $111.3 million, which was a significant improvement from a loss of $415.3 million during the previous-year period. Revenue fell 22% to $942 million, from $1.3 billion a year ago.

The world’s largest video game brick-and-mortar retailer said the coronavirus pandemic helped reduce some operating costs while propelling the chain’s e-commerce sales. The quarter saw an 800% increase in global online sales, and a $133.7 million reduction in SG&A expenses — underscored by a 50% reduction in inventory costs and $181.9 million in free cash flow for the quarter.

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“We believe the actions we are taking to optimize the core operations of our business by increasing efficiencies and creating a frictionless digital ecosystem to serve our customers, wherever and whenever they choose to shop, are enabling us to navigate the COVID-19 environment, while positioning us well for the launch of the next generation of consoles,” CEO George Sherman said in a statement.

The CEO said the quarterly revenue decline was due to the impact of operating during the last few months of a seven-year-long current-generation console cycle and the subsequent limited availability of hardware and accessories; a 13% reduction in total store operating days due to store closures driven by the pandemic; and a 10% reduction in the store base, as part of the company’s “de-densification” strategy, partially offset by almost 40% of closed store sales recaptured through the transfer to neighboring locations and online, leading to improved cash flow.

Comparable store sales declined 12.7%, adjusting for fewer store operating days due to store closures as a result of the global COVID-19 pandemic.

“While the ongoing pandemic continues to create a somewhat uncertain environment in the short term, we are very pleased by the consumer response at GameStop to the few recent video game product introductions and we believe we are ready, with expanded service and payment options, to handle the expected surge in demand and participate in a very significant way in the console launches later this year,” Sherman said.

Michael Pachter, media analyst with Wedbush Securities in Los Angeles, said GameStop’s top-line results were ahead of management’s initial expectations driven by heightened ongoing consumer demand during the pandemic, along with particular strength from the chain’s e-commerce channel.

“We believe management is executing nearly flawlessly in what had previously appeared to be a hopeless situation,” Pachter wrote in a Sept. 10 note.

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