GameStop Lays Off 50 Regional Managers

GameStop has reportedly laid off 50 mid-level employees as it grapples with changing distribution and consumer consumption of video games.

The world’s largest video game retailer, in a leaked email posted on Twitter citing ongoing companywide restructuring, said the cuts “are not easy” but necessary to enable investment in “revenue-driving” initiatives.

“Unfortunately, there are more than 50 field leaders who have been impacted and will be leaving the GameStop team,” GameStop said in the email. “This includes regional, district HR [human resources], and LP [loss prevention] leaders. These leaders will be missed and we wish them success in their future endeavors.”

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New CEO George Sherman has pledged to shake up the status quo in an effort to transform the retailer, which posted a 75% drop in income in its most-recent fiscal period — driven in part by a 35% drop in console sales. Revenue fell 13.3% to $1.54 billion.

Specifically, Sherman wants to focus on the 20% of SKUs that drive 80% of our business. Notable among those performing SKUs: Collectables. The segment saw sales increase 10.5% to $157.3 million, with continued growth of trend items in both domestic and international stores.

“We’ll continue to get better at that piece of the business through inventory optimization and expand the assortment of exclusive products that our customers desire,” Sherman said on the June fiscal call.

GameStop Bowing ‘Modified Dutch Auction’ to Buttress Stock

With its stock in decline, GameStop, the world’s largest video game retailer, June 10 disclosed plans to buttress shares through a so-called “modified Dutch auction.”

Such a strategy enables a company to repurchase shares within a select price range in a short period of time. A typical share buyback program on the open market can take longer and is subject to not receiving the lowest price for investor shares.

GameStop, which saw shares plummet more than 35% on June 7 following lackluster financial results, wants to purchase up to 12,000,000 shares of its Class A common stock at a cash price of not greater than $6.00 and not less than $5.20 per share.

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On June 7, 2019, the closing price of common stock was $5.02 per share. The tender offer is expected to commence June 11 and to expire at 5:00 p.m., New York City time on July 10.

The offer is being made under GameStop’s $300 million share repurchase program announced on April 2.

“While improving our operations and capturing efficiencies in our business to drive returns for our shareholders continues to be the top priority for the new leadership team, we view the purchase of our shares to be financially compelling at this time,” CEO George Sherman said in a statement. “We are committed to leveraging the core strengths of our business, implementing longer-term growth initiatives and continuing our disciplined approach to capital allocation.”

New GameStop CEO Promises Change; Wall Street isn’t Buying: Stock Down 38%

New GameStop CEO George Sherman, in his first earnings call on June 4, pledged to shake up the status quo in an effort to transform the world’s largest video game retailer in the digital age.

Wall Street beat him to the punch after GameStop reported a 75% drop in quarterly income — driven in part by a 35% drop in console sales. Revenue fell 13.3% to $1.54 billion.

Company shares are down a record 38% in midday June 5 trading, with more than six times the typical daily volume of shares traded in just four hours.

GameStop CEO George Sherman

“We struggle with how much GME will able to monetize new ‘experiential’ and subscription initiatives such as eSports and revamping the PowerUp rewards program,” Bank of America Merrill Lynch wrote in a June 5 note.

Sherman said the “GameStop reboot” must “transform” the retailer to remain a viable player in a changing industry underscored by subscription streaming and digital access.

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He said the retailer would focus on the “20% of our SKUs that drive 80% of our business.” Notable among those performing SKUs: Collectables. The segment saw sales increase 10.5% to $157.3 million, with continued growth of trend items in both domestic and international stores.

“We’ll continue to get better at that piece of the business through inventory optimization and expand the assortment of exclusive products that our customers desire,” Sherman said.

At the same time, GameStop is divesting interest in Simply Mac, with a sale of the unit expected in the second quarter and melding the ThinkGeek.com business within the company’s branded “omni-channel” experience.

Sherman is looking to generate a $100 million operation income improvement while cutting debt more than $350 million. He also wants to better leverage the company’s 60 million PowerUp Rewards members.

“We’re evaluating new revenue streams and how we can and should participate in the digital economy, particularly given the significant number of loyal customers we bring the publishers and console makers,” Sherman said. “This will take time but is a necessity to enable us to continue maintaining our position as the leader in the video game space.”

Michael Pachter, media analyst at Wedbush Securities in Los Angeles, says that despite ongoing consumer shifts away from packaged media, majority demand still exists.

“We don’t expect the next console cycle to eliminate physical discs altogether,” Pachter wrote in a note. “Consumers still value physical games for their portability, ease of gift giving and the ability to trade them in for value at GameStop. Notwithstanding dire pronouncements about the imminent demise of physical media, our covered game publishers still sell over 50% of their console games in physical form.”

GameStop Q1 Revenue, Profit Decline as New Management Arrives

GameStop, the world’s largest video game retailer, June 4 reported first-quarter (ended May 4) net income of $6.8 million, which was down almost 76% from income of $28.2 million in the previous-year period.

Revenue fell 13.3% to $1.54 billion, from $1.78 billion a year ago.

New hardware sales decreased 35%, with an increase in Nintendo Switch sales more than offset by a decline in Xbox One and PlayStation 4 console sales.

New software game sales decreased 4.3%, driven by weaker new title launches in the quarter compared to last year. Accessories sales increased 0.6% on the continued strength of controller sales.

Pre-owned game sales fell 20.3%, reflecting declines in hardware and software. Digital receipts decreased 6.7% to $255.4 million, driven by weaker title launches in the quarter compared to last year.

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Meanwhile, collectibles sales increased 10.5% to $157.3 million, with continued growth of trend items in both domestic and international stores.

Chris Homeister
Jim Bell
Frank Hamlin

 

 

 

 

New CEO George Sherman, who joined the company in April, said he has been taking a “thorough” review of the business to improve operational and financial performance, address challenges and execute both “deliberately and with urgency.”

Indeed, to enhance organizational structure, GameStop May 30 announced the hiring of Frank Hamlin as chief customer officer and Chris Homeister as chief merchandising officer. The chain also hired James Bell as CFO. All three report to Sherman.

“We believe we will transform the business and shape the strategy for the GameStop of the future … driven by our go-forward leadership team that is now in place, a multi-year transformation effort underway, a commitment to focusing on the core elements of our business that are meaningful to our future, and a disciplined approach to capital allocation,” Sherman said in a statement.

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.