GameStop Widens Q4, Fiscal Year Losses Due to Impairment Charges

GameStop April 2 reported fourth-quarter (ended Feb. 2) loss of $187.7 million, up 77% from a loss of $105.9 million during the previous-year period. Revenue dipped 7.7% to $3 billion from $3.3 billion last year.

The world’s largest video game retailer attributed the loss to asset impairment charges and other items of $334.5 million. Without the charges, adjusted net income from continuing operations decreased 16.2% to $148.5 million, compared to adjusted net income from continuing operations of $177.2 million in the prior- year quarter.

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For the fiscal year, the net loss topped $673 million compared to net income of $34.7 million in fiscal 2017. The loss included asset impairment charges and other items of $964.2 million primarily related to impairment of goodwill. Excluding asset impairment charges and other items, GameStop’s adjusted net income from continuing operations for fiscal 2018 decreased 22.9% to $218.4 million

“This past year was a pivotal one for GameStop, capped by retail industry veteran George Sherman’s appointment as CEO beginning April 15,” Dan DeMatteo, executive chairman, said in a statement.

DeMatteo said the sale of Spring Mobile better positioned the retailer to drive shareholder value with an “intense focus” on leveraging the company’s global gaming and collectibles business – in addition to the announced paydown of $350 million of outstanding notes. The executive said GameStop is upbeat with the pending arrival of new CEO George Sherman

“We are excited to move forward under George’s leadership as we refine our strategic direction and implement several initiatives under development to strengthen the company for the future and drive sustainable growth and profitability,” DeMatteo said.

New hardware sales decreased 9.8%, with an increase in Nintendo Switch sales offset by a decline in Xbox One X sales due to its strong launch in the prior year and the impact of the 53rd week in fiscal 2017.

New software sales decreased 7.8%, driven by key titles launching earlier in the year compared to last year and the impact of the 53rd week in fiscal 2017. Accessories sales increased 18.8% on the continued strength of controller and headset sales.

Pre-owned sales declined 21.3% reflecting declines in hardware and software. Digital receipts increased 4.7% to $432.5 million, primarily driven by strength in sales of digital currency. Collectibles sales increased 3.1% to $268.8 million, with continued growth in both domestic and international stores.

Based on initial estimates, GameStop said it is working to achieve annualized operating profit improvements of approximately $100 million in fiscal 2019.

 

Sony Stopping Retailers from Selling Digital Video Game Codes

In another blow to packaged-media retail, Sony Interactive Entertainment is taking steps to stop retailers such as GameStop, Amazon and Best Buy from selling digital codes to its video games.

The move would hinder consumers from bypassing the credit card payment option at Sony’s PlayStation Network and purchasing codes to PS4 titles at physical and online retail.

“We can confirm that as of April 1, Sony will no longer offer full games through SIE’s Global Digital at Retail program,” the company told The Verge in a statement. “This decision was made in order to continue to align key businesses globally. To support full games and premium editions, SIE will introduce increased denominations at select retailers.”

The move will reportedly not affect pending releases of Days Gone and Mortal Kombat 11.

Sony said the new policy would not affect downloadable content, add-ons, virtual currency, gift cards and season passes. The publisher will also continue to offer third-party PSN credit options at select retailers.

Sony’s action mirrors efforts by Disney to stop Redbox from selling digital codes to its movies. That move resulted in litigation with a federal judge last summer granting Disney’s request for a preliminary injunction against Redbox.

That injunction only applies to newer “combo pack” releases with a revised disclaimer on the package. Redbox said it would continue selling digital codes to earlier Disney releases such as Frozen and older “Star Wars” movies.

GameStop Names New CEO

GameStop March 21 announced the appointment of George Sherman as CEO and member of the board of directors, effective April 15.

Sherman succeeds Shane Kim, who has served as interim CEO since May 2018 and as a director since July 2011.  Most recently, Sherman served as CEO of Victra, a retailer for Verizon Wireless products and services.

George Sherman

“[George’s] extensive retail leadership at several top brands, including Advance Auto Parts, Best Buy, Target and Home Depot positions him as the right choice to lead GameStop for the years ahead,” Dan DeMatteo, GameStop’s executive chairman, said in a statement.

DeMatteo said after a thorough review of strategic and financial alternatives, the nation’s largest video game retailer is at a critical juncture.

While the board recently announced the initial steps of capital allocation and shareholder return program, DeMatteo said senior management expects Sherman to accelerate the next steps in that plan.

“As George and our team finalize the blueprint for GameStop, we will continue to leverage our leadership position in the video game industry to discover new ways to support our loyal customers, while attracting new customers and serving their entertainment needs,” he said.

Sherman comes on board GameStop as the retail brand is in transition due to changing consumer habits surrounding video games – notably online gaming and subscription services.

Google just announced it is launching a cloud-based game platform that would enable gamers to play high-profile games on most connected devices with a proprietary control.

In January, GameStop’s board announced it was canceling efforts to sell the world’s largest video game retailer.The chain reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.

 

GameStop Calls Off Company Sale, Stock Plummets

Shares of GameStop were down more than 23% in early trading Jan. 29 after the company announced it was canceling efforts to sell the world’s largest video game retailer.

The Grapevine, Texas company, which operates more than 5,800 retail locations in 14 countries, said is continuing the search process to appoint a permanent CEO and is working with an executive search firm.

In June 2018, GameStop’s board began discussions with third parties regarding a potential sale of the company. The board terminated sale efforts due to the lack of available financing on terms that would be commercially acceptable to a prospective acquirer.

GameStop earlier this year sold its Spring Mobile business generating about $735 million in cash. It plans to use the funds pay down outstanding debt, fund share repurchases, and reinvest in core video game and collectibles businesses.

As of Nov. 3, 2018, GameStop had $820 million of outstanding debt, $350 million of which carries a 5.50% interest rate and is due on Oct. 1, 2019. The elimination of that debt will represent annualized savings of roughly 14 cents per share, according to Wedbush Securities digital media analyst Michael Pachter.

“GameStop should be a primary beneficiary from the console refresh in 2020 or 2021, and it remains the dominant force in the video game industry’s pre-owned segment,” Pachter wrote in a Jan. 29 note.

Earlier this month, GameStop reported a 5% decline in global 2018 winter holiday revenue to $2.63 billion, compared to the nine-week holiday period ended Dec. 30, 2017.

 

GameStop Eyes Going Private to Survive

GameStop, the world’s largest video game retailer, is considering strategic options in 2019 that include taking the retailer private as increasing numbers of gamers stream games from the Internet instead of buying discs.

Operating nearly 6,000 stores worldwide, GameStop has more than $800 million in bond debt – 50% of which reportedly is due this year. Revenue remained relatively flat at $5.6 billion during its most recent fiscal period (ended Nov. 3, 2018).

The company generated a net loss of $485 million compared to income of $140 million during the previous-year period. GameStop is currently headed on an interim basis by CFO Rob Lloyd.

Essentially, the retailer mirrors Redbox in 2016, when the kiosk vendor of movie DVD rentals, was acquired and taken private by investor group Apollo Global Management $1.6 billion.

Now, Apollo, and separately Sycamore Partners, is reportedly considering acquiring GameStop in a transaction that could come together in mid-February reports The Wall Street Journal, citing sources familiar with the situation.

It’s an endgame that involves closing unprofitable stores, reducing debit, according to Michael Pachter, media analyst with Wedbush Securities in Los Angeles.

“They’ve lost the interest of investors and being public causes them to do things they might not otherwise do, like try to diversify,” Pachter told the Journal.

Indeed, GameStop continues to invest heavily in the collectibles market, which include posters, T-shirts, action figures, trading cards, and costumes, among others. Collectibles sales increased 11.7% to $154.6 million.

Technology Brands, which includes the Simply Mac retail chain, generated operating earnings of $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.

GameStop in late November announced it was selling the Spring Mobile division for $700 million.

Regardless, some analysts expect winter holiday same-store comp sales to decline when Game Stop reports them later this month.

“GameStop has become irrelevant in the video game market,” Mike Hickey, analyst at The Benchmark Co., wrote in a note.

 

 

GameStop Posts $488 Million Q3 Loss, Cuts Full-Year Outlook

GameStop Nov. 29 reported a third-quarter (ended Nov. 3) net loss of $488.6 million 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.

 

 

Walmart Ups Collectibles Market Presence

Walmart is entering the lucrative collectibles market by partnering with niche merchandise providers. The retail behemoth is rolling out dedicated collectibles sections selling movie, TV show and pop culture-themed merchandise, bobbleheads, T-shirts and posters in the entertainment department of more than 3,500 stores, starting Oct. 15.

“Pop culture fans are passionate about their fandoms and look for ways to incorporate it into all aspects of their life,” Brent Duwe, senior buying manager at Walmart, said in a statement. “We’re introducing a new assortment to serve fans in a way we haven’t before.”

The world’s largest retailer is partnering with Loot Crate, Funko Fanatics, McFarlane Toys and CultureFly, among others, featuring top movie, TV and game franchises reimagined as limited-edition collectibles.

Walmart will be the exclusive brick-and-mortar retail home for Loot Crate fan subscription boxes. Customers have their choice of six different boxes, all around a unique theme such as “Best of the 80s,” “Space Out,” “Merc with a Mouth,” “Not of this World,” “Gaming Treasures,” or “Gaming Legends”.

“[We] creatively collaborate with top licenses to deliver collectibles that are unique, and something that super-fans could only find at fan conventions, but now they can [find] at Walmart stores nationwide,” said Chris Davis, CEO of Loot Crate.

Funko will market Funko Pop! vinyl figures at Walmart as Funkomerchandise migrates from toy stores to Walmart’s collectibles section. The retailer will feature exclusive chrome Thanos in six different colors, one for each of the Infinity Stones.

“Collectibles is a brilliant addition to the merchandise display as is evident by the millions of people that shop pop culture favorites,” said Brian Mariotti, CEO of Funko.

CultureFly markets pop-culture-themed apparel and TV show and movie boxed collectibles, including “Supernatural,” “Game of Thrones,” super hero-themed “World’s Finest: The Collection,” “Jay and Silent Bob,” and “The Nick Box” (Viacom), among others.

“I am confident that consumers will fall in love with the assortment and feel like they are walking a mini Comic-Con at their local Walmart,” said Edward Erani, co-founder of CultureFly.

GameStop Posts $24.9 Million Q2 Loss, Confirms Engagement with Third Parties Regarding Possible Sale of the Company

GameStop Sept. 6 reported a second-quarter (ended Aug. 4) net loss of $24.9 million, compared to a profit of $22.2 million during the previous-year period. Revenue was relatively flat at $1.64 billion.

The nation’s largest video game retailer attributed the loss in part to a one-stop tax charge regarding operations in France. Without the charge, GameStop’s adjusted net income for the second quarter was $4.7 million, compared to adjusted net income of $14.9 million in the prior-year quarter.

The company also confirmed that it continues to engage with third parties regarding a possible transaction as part of a comprehensive review of strategic and financial alternatives initiated by the company’s board of directors. The ongoing process includes a thorough evaluation of a full range of alternatives to enhance shareholder value.

“As our teams prepare for a busy and exciting holiday period, our board of directors, with the support of our financial and legal advisors, continues to conduct a comprehensive review of strategic and financial alternatives, including, but not limited to, a potential sale of the company,” Dan DeMatteo, executive chairman of the board, said in a statement.

GameStop said there could be no assurance that the board’s review will result in any sale of the company.

Meanwhile, collectibles sales increased 15.7% to $141.7 million, driven by continued expansion of licensed merchandise offerings, new and improved product offerings and notable growth in apparel.

Technology brands operating income increased 35.3% to $20.3 million compared to $15.0 million in the prior-year quarter, despite a 10.3% decline in sales to $168.9 million, primarily due to store closures relative to fiscal 2017.

New hardware sales increased 20.1%, driven by the launch of the Xbox One X and continued strong sales of the Nintendo Switch and PS4.  New software sales decreased 18.5% primarily due to the lack of significant title launches during the quarter. Pre-owned sales declined 9.9%.

 

GameStop Stock Takes a Tumble on No-Deal Fears

Video game retailer GameStop Corp. on Aug. 27 suffered its worst stock decline since May as investors questioned whether the Grapevine, Texas-based company will succeed in a deal to be acquired, according to Bloomberg..

The shares fell nearly 11% to close at $14.71, the biggest same-day fall since May 18, Bloomberg says.

GameStop had rallied in recent months, buoyed by speculation that it was in negotiations to be acquired by a private equity firm such as Sycamore Partners. The company on June 19 said it was in “exploratory discussions” with third parties about a potential deal, Bloomberg said, but warned at the time that those talks would wind up a dead end.

“It’s been a roller-coaster ride,” said Matthew Kanterman, an analyst at Bloomberg Intelligence. “They’ve been approached with a proposal to go private – people are waiting for something about that.”

Seeking Alpha on Aug. 27 observed, “GameStop is a troubled company, with a high dividend yield above 9%. Investors’ sentiment is very negative, due to the continued decline in brick-and-mortar retail industry, particularly when it comes to video games. However, GameStop is highly profitable, and the company still generates enough cash flow to sustain its dividend.”

GameStop Confirms Private Equity Talks

GameStop, the world’s largest video game retailer, June 19 confirmed it is in preliminary negotiations with unnamed third parties regarding a potential transaction.

The retailer, which has seen rapid changes with the advent of digital gaming, said there was no assurance any agreement would result from these discussions. It has hired a financial advisor.

“GameStop does not intend to make any additional comments regarding these discussions unless and until it is appropriate to do so,” the company said in a statement.

Trading of the retailer’s stock was halted by Nasdaq June 18 due to “volatility.”

The retailer remains enmeshed in corporate turbulence. Profit plummeted 52% on revenue of $1.9 billion in the most-recent fiscal period driven by declines in hardware and software sales. The company remains headed by an interim CEO after previous boss Michael Mauler departed after 90 days on the job for unspecified reasons.