GameStop Shares Decline By 20% As Weak Demand Triggers A Cut In Forecast

GameStop Corporation (NYSE: GME) on Tuesday cut its full-year profit forecast as the video game retailer has struggled with customers delaying console purchases ahead of new launches and a shift to digital downloads of games. This move has caused a 20% decline in the price of its shares.

GameStop Corp. is an American video game consumer electronics and merchandise retailer. The company has its headquarters in Grapevine, Texas, United States. It operates about 5830 retail stores throughout the United States, Canada, Australia, New Zealand and Europe; and these retail stores primarily operate under the brands GameStop, EB Games, ThinkGeek and Micromania.

Following the selling of the video games for Atari consoles in the 1980s, the company became very popular. Currently, the company faces the rise of game streaming services from big technology companies such as Alphabet unit, Google and Apple Inc.

The Chief Executive Director of GameStop, George Sherman in a statement said, "with console makers set to introduce new and innovative gaming consoles late next year, we anticipate this trend to continue until the fourth quarter of 2020." Reuters report that newer versions of Sony Corp's PlayStation and Microsoft Corp.'s Xbox are expected to be unveiled next year.

Countering the weak trend, the company gave a sneak peek that it would wind down operations in Denmark, Sweden, Finland and Norway, but however stay on course to achieve its $200 million annual operating profit improvement goal by 2021.

Several reports say the company abandoned efforts to sell itself at the beginning of the year after it failed to get a buyer on favourable terms. Right now, the company is looking for ways to strengthen its website and target higher-margin items like gaming accessories.

The third quarter of GameStop ended on the 2nd of Nov, and below are the  key takeaways that were obtained from the report.

·      GameStop had a decline of 23.2% in comparable store sales, which is quite higher than estimates for a 13.8% decline.

·      The sales of new hardware tanked by 45%, while that of software plunged by 32.6% even though a growth occurred in Nintendo Switch titles.

·      GameStop also had a surprise loss of 49 cents per share which was against the expectations for a profit of 11 cents.

·      Net sales declined by about 26% to $1.44 billion, which was below analysts' average estimate of $1.62 billion.

·      The most profitable segment of GameStop, Pre-owned games was greatly affected by a decline in demand.

·      For the full year, the company expects earnings per share in the range of 10 cents to 20 cents which is quite shorter than its earlier forecast of $1.15 to $1.30.

·      The company had a third-quarter loss of $84.3 million compared with a loss of $488.6 million per share in 2018.

·      The company's revenue declined to $1.44 billion from $1.94 billion in the quarter of a year ago.

George Sherman further said in his note, "Our third quarter results continue to reflect the prevailing industry trends, most notably the unprecedented decline in new hardware sales seen across the market as the current generation of gaming consoles reach the end of their lifecycle and consumers delay their spending in anticipation of new hardware releases."