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GameStop (GME) Slides on Soft Holiday Sales, Revisits View

Zacks Equity Research
GameStop (GME) Slides on Soft Holiday Sales, Revisits View

Holiday season turned out to be a tough one for GameStop Corp. GME with sales coming in below expectations. The disappointing performance compelled the video game retailer to revisit fiscal 2019 view. Management did expect the sales environment to be challenging as customers are choosing to postpone their purchases on account of expected console launches in late 2020. But a sharper-than-expected fall in new hardware and software sales particularly in the month of December has dealt a heavy blow.

These were enough to hurt investor sentiment. As a result, shares of this Grapevine, TX-based company fell 9.8% during the after-market trading hours on Jan 13. We note that this Zacks Rank #3 (Hold) stock has declined 3.2% in the past three months against the industry’s rally of 28.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Total global sales for the nine-week holiday period ended Jan 4, 2020 plunged 27.5% to $1.83 billion. Comparable store sales decreased 24.7% against an increase of 1.5% in the year-ago period. Consequently, GameStop adjusted fiscal 2019 sales view and now envisions earnings “to be below guidance.” The company also added that the challenges it countered in the fourth quarter of fiscal 2019 are likely to persist in fiscal 2020.

Management now expects fiscal 2019 comparable store sales to decline in the band of 19-21%. The company had earlier guided comparable store sales to decline in high teens. The company projects capital expenditures between $75 million and $80 million and forecasts total cash and liquidity, including availability under the revolving line of credit, at the end of the fiscal year to be about $900 million.



Wrapping Up

GameStop, which used to be one of the prominent players in the video game industry, has been grappling with sluggish sales at its stores owing to consumers inclination toward buying games and gaming consoles from e-retailers or downloading or streaming games online.

Nonetheless, the company has been undertaking strategic endeavors to be back on track. These involve optimization of inventory, focus on high margin product categories and store base rationalization worldwide. The company also plans to expand and redesign PowerUp Rewards loyalty program, enhance digital capabilities, and improve engagement with vendors and partners.

Also, GameStop highlighted that it is witnessing sustained improvement in the Nintendo Switch platform that compliments management’s view of sales to strengthen with the introduction of new consoles and innovative technology.

3 More Retailers’ Holiday Sales Reports

Macy’s M comparable sales on an owned plus licensed basis decreased 0.6% during November and December period combined, while on an owned basis, comparable sales fell 0.7%.

Urban Outfitters URBN witnessed comparable Retail segment net sales increase of 3% for the two months ended Dec 31, 2019.

J. C. Penney JCP reported comparable store sales decline of 7.5% for the combined nine-week period ending Jan 4, 2020.

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