Categories Analysis, Leisure & Entertainment

GameStop’s (GME) recovery hopes could be far-fetched. Here’s why

Efforts are on to stabilize and optimize core operations to bring the business back on track

The growing adoption of online services has created a win-win situation for enterprises and customers, especially during the pandemic, but not every company is benefiting from it. Video game retailer GameStop Corp. (NASDAQ: NYSE) has been hit by the mass shift from conventional gaming practices to digital services. With the company steadily losing business to the internet, despite aggressive e-commerce initiatives, the management pins hope on the changing market environment to stay afloat.

Gamestop’s stock shifted to recovery mode this year, after staying in the single-digit territory for a long time, and maintained the uptrend. But the stock is expected to pull back in the coming months as demand conditions remain weak, making it a risky bet. The next few months will be crucial for the company when normalcy is expected to return to the market, giving more clarity on the trend. So, it is not the right time either to buy or sell the stock.

Weak Q3

The company once again disappointed the stakeholders this week by reporting a loss for the most recent quarter. Loss widened to $0.53 per share in the third quarter, hurt by a 30% fall in sales to about $1 billion. While the bottom-line beat the Street view, sales fell short of expectations. Reflecting the underlying weakness, all the three business segments registered negative growth even as comparable sales deteriorated after last quarter’s improvement.

GameStop Q3 2020 earnings infographic

The highlight of the third quarter was a two-fold growth in e-commerce sales, which is in line with the performance of the broad retail sector. In a sign sales are picking up during the holiday season, comparable sales bounced back in the early fourth quarter, coinciding with the recent console launches.

The recovery is important for the company because it comes at a time when the demand for discretionary items hit a low. Investors will be watching the performance closely as the season progresses. Sales of consoles and other gaming products usually spike during the period.

Revival Strategy

After closing more than 1,000 stores since last year, with more in the firing line, GameStop executives have laid down a strategy to stabilize and optimize core operations to combat the challenges posed by the pandemic-induced supply-chain disruption and the transition from generation 8 to generation 9 console gaming products. On the positive side, the cost-cutting initiatives have started yielding results, enhancing the cash flow.

We are positioning GameStop to be the leading global omnichannel retailer for all things gaming and entertainment. We are encouraged by our successful efforts in 2020 to begin category and product extensions that increased our addressable market as well as by our customers’ early response to expanded products and services offering. At the forefront of this strategy is a digital-first approach focused on delivering a best-in-class e-commerce experience along with an optimized retail footprint.

George Sherman, chief executive officer of GameStop

A Rough Patch

Since customers are unlikely to go back to conventional discs for consuming gaming content and GameStop lacks a clear strategy to stay relevant in the digital era, it looks like the company’s struggles are far from over.


Read management/analysts’ comments on GameStop’s Q3 results


After recovering from the recent lows, GameStop’s stock dropped this week following the third-quarter earnings release and traded lower during Wednesday’s regular session. It is yet to fully recover from the losing spree that started a few years ago, though the value more than doubled in the past twelve months.

Looking for more insights?

Read the full conference call transcript here. It’s free!

Most Popular

Earnings calendar for the week of January 18

While the markets got a boost a couple of weeks ago after Congress passed the new stimulus bill, investors seem to have adopted a cautious stance as details of the

Can ReneSola count on pipeline, global expansion to stay on growth path?

After the initial lull, the renewables industry witnessed stable capacity addition during the pandemic, even as the lingering uncertainty underscored the need for energy self-reliance. Solar power companies like ReneSola

US retail sales fall for third straight month in December; 2020 holiday sales rise 8.3%

According to a report by the US Census Bureau, adjusted retail and food services sales totaled $540.9 billion in December 2020, down 0.7% from November 2020 but up 2.9% from

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top