GameStop Shares Fall on Surprise Loss

GameStop Corp.

GME 0.97%

recorded a loss during the holiday quarter despite an increase in sales, surprising analysts who were expecting the videogame retailer to turn a profit.

GameStop has been working to turn around its business under the leadership of a revamped executive team and board of directors. The Grapevine, Texas-based company on Thursday posted $2.25 billion in net sales for the 13 weeks ended Jan. 29, above analysts’ expectations of $2.16 billion. It reported $2.12 billion in revenue for the same period last year.

New and expanded relationships with companies such as Lenovo Group LNVGY 2.45%

and Corsair Gaming Inc.

CRSR 1.23%

helped to drive the growth, GameStop said.

On an adjusted basis, the retailer logged a loss of $1.86 a share. Analysts polled by FactSet expected adjusted earnings of 85 cents a share.

“The combination of supply chain issues and the Omicron variant had a sizable impact on this past year’s holiday season,” GameStop’s chief executive, Matt Furlong, said on a call withs analyst.

Even so, it isn’t a good sign if the company can’t turn a profit in what is supposed to be its busiest time of the year, said Wedbush Securities analyst Michael Pachter. “If they can’t make money in the holiday quarter, they’re doomed,” he said.

GameStop shares were down more than 7% in after-hours trading. The stock closed Thursday at $87.70 and is down 58% over the last 12 months.

The increase in revenue comes as ongoing supply-chain constraints impact everything from gaming consoles to semiconductor chips. Cost of sales were roughly $1.88 billion, up 12%, while selling, general and administrative expenses were $538.9 million, up nearly 29%.

GameStop said it has been spending on building up its inventory to better serve its online customers.

“Increased investment in inventory reflects the company’s focus on meeting heightened demand and mitigating supply-chain headwinds,” the company said in a release.

GameStop didn’t provide an outlook for the current quarter or full fiscal year 2022, saying on the earnings call that it wouldn’t be prudent to do so during the early stages of its transformation.

The company hasn’t provided guidance since March 2020, though previously it cited uncertainty due to the pandemic as the reason. The company also hasn’t taken questions from analysts on its calls over the past year and it didn’t earnings on Thursday.

The videogame retailer has struggled to turn a profit in recent years largely because many console- and computer-game players have moved to downloading games over the internet, instead of buying the hard copies that the company specializes in selling. In addition, more people have been downloading games on smartphones and tablets in recent years, while publishers have been releasing more free games that generate revenue from sales of virtual goods.

GameStop has been trying to update its business model so it is less dependent on sales in its physical stores and gets more revenue from online purchases.

In June, GameStop overhauled its executive team and board of directors, naming Mr. Furlong, a former Amazon.com Inc.

veteran as CEO. Shareholders also voted Chewy Inc.

co-founder Ryan Cohen as chairman and elected an entirely new slate of directors.

The changes came after a monthslong, social-media-fueled trading frenzy that helped GameStop’s stock price skyrocket at the start of 2021. After reaching a peak of around $350 a share last year, the stock slid to less than $90 a share this week, amid concern that the company hasn’t done enough to reverse its fortunes.

In an attempt to improve GameStop’s prospects, Mr. Cohen has been pushing to make the company more tech-centric, such as by launching a redesigned app and adding more fulfillment centers for faster deliveries of online orders. Further, GameStop said last month that it plans to step into the trendy but unproven nonfungible-token space by launching a marketplace for buying and selling the digital certificates in partnership with an Australian blockchain startup.

GameStop said it intends to launch its NFT marketplace by the end of the second quarter.

On a call with analysts, Mr. Furlong warning that it will take time for these moves to bear fruit and that management is “comfortable” with the situation.

“We needed to lay a lasting foundation rather than taking shortcuts,” he said. “That is what we did over the past year as we started to transform into a technology company.”

In the meantime, though, GameStop investors are losing patience, said David Trainer, chief executive of independent investment research firm New Constructs LLC. He doesn’t expect the stock to return to the highs of 2021, as the company continues to face headwinds such as competition from Amazon.com and increasing demand for digitally delivered games. “There is absolutely no fundamental reason to own shares of GameStop,” he said.

Write to Sarah E. Needleman at [email protected] and Denny Jacob at [email protected]

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