November 29, 2018
GameStop Nov. 29 reported a third-quarter (ended Nov. 3) net loss of $488.6 compared to income of $59.4 million during the previous-year period. Sales increased 4.8% to $2.1 billion from $1.98 billion last year.
The nation’s largest video game retailer attributed the loss to a non-operating, non-cash intangible asset impairment charge of $587.5 million, primarily related to goodwill and triggered by the sustained decline in the company’s share price.
Without the impairment charge, adjusted net income actually increased 24% to $68.3 million, compared to adjusted net income of $55.1 million in the prior-year quarter.
Indeed, pre-holiday comparable store sales increased 3.4% increase in the U.S. New hardware sales increased 12.8%, driven by demand for Xbox One X and Sony PS4. New software sales increased 10.9% driven by the strong slate of titles that launched during the quarter. Accessories sales increased 32.6% on the strength of headset and controller sales. Pre-owned sales declined 13.4%.
Digital sales increased 29.5% to $341.6 million driven primarily by strength in sales of digital currency.
Collectibles sales increased 11.7% to $154.6 million due to continued growth in both our domestic and international collectibles business.
Technology brands operating earnings increased 29.4% to $23.3 million compared to $18 million in the prior-year quarter, despite an 11.9% decline in sales to $171.1 million, primarily due to store closures relative to fiscal 2017.
“Software sales benefited from a compelling title line-up … including Red Dead Redemption 2and Spider-Man, as well as the earlier launch of Call of Duty,” COO/CFO Rob Lloydsaid in a statement. “We are especially pleased with our performance in October, a month where The NPD Group disclosed that the U.S. physical video game industry grew by 46% while our U.S. physical video game revenue outpaced the industry and increased 63% resulting in market share gains.”
That said, Lloyd cautioned about brewing storm clouds as current fourth-quarter sales are being driven by hardware versus higher-margin software.
“While our Black Friday and Cyber Monday sales were strong … the underperformance of certain titles, weakness in pre-owned and recent sales promotions, will result in fourth quarter earnings that are below our previous expectations,” Lloyd said.
The executive reiterated management is evaluating “all aspects of our business,” including store operations, cost structure, strategic and economic partnerships with publishing and platform partners, and relationships with customers and the services to “enhance our business and drive growth and profitability over the long term.”
Indeed, GameStop announced it sold 1,289 branded AT&T wireless stores for $700 million – proceeds it said would be used to pay down debt.