Gamestop is in an unusual place for a retailer: The company made a quarterly profit but sales are down a whopping 30%. According to a recent earnings announcement, net sales fell 31.4% to $798 million in the second quarter, which is down from about $1.2 billion in 2023. “While we admire GameStop’s ability to manage operating losses, we think it would be just as reasonable for management to close all of its stores and operate as a bank,” said Wedbush analysts led by Michael Pachter via RetailDive. “GameStop announced accelerated store closures with its earnings, but with no replacement strategy in sight, management indirectly indicates that it is no longer beholden to shareholder interests.” Here’s why people aren’t spending money at GameStop.
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Poor Sales
GameStop is closing some stores because people simply aren’t spending money in them. Sales for hardware and accessories are down 24%, software revenue is down 48%, and collectibles revenue is down by 18%. “GameStop has many strengths and assets, including strong household brand recognition and a significant store network,” the company said.
Used Hardware
ShutterstockWedbush analysts note GameStop’s strength is in selling used and older products. “We estimate that used hardware and software margins are at least 20 percentage points higher than on new product sales. This trend is likely to continue, but at the same time, GameStop committed to accelerating its store closures while secular trends are unlikely to shift in the near-term. As a result, we expect ongoing revenue declines in the coming years to result in decreasing profitability.”
Closing Down Stores
ShutterstockGameStop closed 287 locations in 12 months, and more are set to be closed down."While this review is ongoing and a specific set of stores has not been identified for closure, we anticipate that it may result in the closure of a larger number of stores than we have closed in the past few years," the company said.
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Brick and Mortar Troubles
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GameStop is dealing with the same issue many brick-and-mortar stores are facing across the board—having to compete with digital retail. “One of the possibilities GameStop's management is pursuing is the transition to a digital business model,” says GuruFocus. “In theory, it is the most viable solution as costs are lower and a wider customer base could be reached with an active e-commerce platform. However, this transition may be coming too late. The online space is heavily crowded with large, well implemented and fast shipping service e-commerce companies.”
What’s Next For GameStop?
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Can GameStop recover? “While many businesses suffered from the early Covid environment, most recovered,” says GuruFocus. “And even though the pandemic era was by itself a large tailwind to the gaming and entertainment segments, the company failed to recover and benefit from a growing demand in those segments. GameStop has reached a point where it is selling its own shares.”
