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Will 2020 turn out better for GameStop?

GameStop Corp. (NYSE: GME) had a disappointing year in 2019 with sales declines both on a consolidated basis and across most of its segments. In its most recent quarter, the topline fell nearly 26% while new hardware sales were down nearly 46%.

This has been attributed to the current trends in the industry as the current set of gaming consoles reach the end of their lifecycles and customers await new hardware releases. GameStop expects this trend to continue until the fourth quarter of 2020 as the new consoles are expected to launch late next year.

Image for representation only/Photo by Caspar Camille Rubin on Unsplash

However, the company has been undertaking several strategic initiatives and making efforts to drive its growth. These plans appear to be making progress and are expected to help improve profitability going forward.

As part of its efforts to reshape its business and tackle underperforming areas, GameStop is closing some of its operations in Europe and this move is expected to deliver around $15 million in EBITDA run rate improvement.

The company has also been trying to optimize its business model through expense reduction and effective inventory management. As a result of these efforts, inventories were down 30% year-over-year at the end of the third quarter and there has been an improvement in the overall inventory position and stock levels. These optimization efforts are helping to generate strong cash flows.

GameStop is seeing an improvement in margins thanks to sharper pricing and better markdown strategies. The company is also moving into higher margin categories. The collectibles business has seen good momentum through the year and GameStop is improving its product offerings in this division. The company sees significant opportunity in the category with regards to the upcoming launches of popular franchises.

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Also read: GameStop Q3 2019 Earnings Report

GameStop is also making use of its existing capabilities to expand in private label opportunities for video game accessories and other items. The company also sees massive opportunities in terms of the current growth in video games and esports.

GameStop has also been testing customer-immersive experiences at a few of its stores and has been tweaking its loyalty and rewards programs to drive engagement. These efforts have garnered good feedback.

The company is also building its ecommerce capabilities to provide better access to digital content and products and these actions have resulted in higher conversion rates and average revenue per user. There has also been an increase in buy-online, pick up in-store transactions which is a positive sign.

Although the general sentiment surrounding the stock is pessimistic, there are a few analysts who believe that these initiatives will help put GameStop back on track to increase profitability and drive growth going into next year.

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