Struggles intensify for GameStop as comparative sales decline by a significant 23% year-on-year

GameStop, the American video game and consumer electronics retailer, reported its third-quarter results recently, revealing a decline in sales and a net loss of $83.4 million. However, analysts at Jeffries remain optimistic about the retailer's future, citing cost cuts and anticipated rebound in revenue towards the end of 2020 due to new hardware launches.

The company has managed to trim $30 million from its corporate overhead, about halfway towards a larger cost-cutting effort. GameStop's management has also announced plans to close as many as 250 stores globally this year.

Comparable sales at GameStop declined by 23.2% in the third quarter. Hardware sales dropped by 46%, a figure that was "well below expectations" according to Sherman. This decline was in line with the industry overall. Accessories and pre-owned games sales both decreased more than 13%.

However, there was a silver lining. Collectibles were the only area of growth for GameStop in the third quarter, with a 4.3% increase. This growth is significant, as collectibles represented more than 11% of the company's sales in the third quarter.

GameStop aims to adjust its strategy by forging new exclusive partnerships with brands, re-imagining its stores as hubs for gamers, and shifting its merchandise mix to include collectibles and higher-margin products like accessories. The retailer has already entered into exclusive publisher partnerships and focused on providing collectibles and hardware, with a recent significant push into digital platforms.

Despite the challenging quarter, Jeffries analysts acknowledge GameStop's turnaround plan but express a need for a "sense of urgency" and more aggressiveness in implementing changes. Management has cut their guidance for the full fiscal year, slashing more than a dollar from their earnings-per-share estimates. GameStop's net sales fell by nearly 26% year over year to $1.4 billion in the third quarter.

GameStop's ending inventories decreased by 30% compared to the prior year, helping generate cash flow despite sales declines. The retailer's fate is tied to the gaming industry, which is evolving. New game software sales at GameStop decreased by 32.6% in the third quarter.

Sherman, a leading analyst, believes that Q3 is not reflective of GameStop's long-term prospects. He remains hopeful about the retailer's ability to rebound, particularly with the anticipated new hardware launches. Jeffries analysts expect GameStop's revenue to rebound in late 2020, thanks to these launches.

The company's comps are now expected to decline in the high teens, worse than the low-teens decline previously predicted. Despite these challenges, GameStop continues to navigate the changing landscape of the gaming industry, striving to adapt and thrive in the face of market fluctuations.

Struggles intensify for GameStop as comparative sales decline by a significant 23% year-on-year