GameStop shares its downfall in surprise loss

GameStop Corp.

EMG 0.97%

posted a loss in the holiday quarter despite an increase in sales, surprising analysts who had expected the video game retailer to turn a profit.

GameStop has been working to turn its business around under the leadership of a revamped management team and board of directors. The Grapevine, Texas-based company on Thursday reported $2.25 billion in net sales for the 13 weeks ending Jan. 29, above analysts’ expectations of $2.16 billion. It grossed $2.12 billion in revenue for the same period last year.

GameStop said new and expanded relationships with companies such as Lenovo Group LNVGY 2.45%

and Corsair Gaming Inc.

CRSR 1.23%

helped stimulate growth.

On an adjusted basis, it recorded a loss of $1.86 per share. Analysts polled by FactSet had expected adjusted earnings of 85 cents per share.

It’s not a good sign if the company can’t turn a profit during what is expected to be one of its busiest times of the year, said Wedbush Securities analyst Michael Pachter. “If they can’t make money during the party district, they’re doomed,” he said.

GameStop shares were down more than 7% in after-hours trading. The stock closed Thursday at $87.70 and is down 58% in the past 12 months.

The revenue boost comes as continued supply chain constraints impact everything from game consoles to semiconductor chips. Cost of sales was approximately $1.88 billion, up 12%, while selling, general and administrative expenses were $538.9 million, up nearly 29%.

GameStop said it spent to build its inventory to better serve its online customers.

“The increased inventory investment reflects the company’s focus on meeting increased demand and mitigating supply chain headwinds,” the company said in a statement.

GameStop did not provide a current quarter or full year outlook. The company suspended issuing guidance on its outlook in March 2020, citing uncertainty due to the pandemic. The company also did not respond to questions from analysts on its earnings calls over the past year.

The video game retailer has struggled to make a profit in recent years, largely because many console and computer game players have switched to downloading games from the internet, instead of buying the hard copies that the company specializes in sales. Additionally, more and more people are downloading games on smartphones and tablets in recent years, while publishers are releasing more free-to-play games that generate revenue through the sale of virtual goods.

GameStop tried to update its business model so that it was less dependent on sales in its physical stores and derived more revenue from online purchases.

In June, GameStop revamped its management team and board of directors. Former Amazon.com Inc.

veterans Matt Furlong and Mike Recupero have been named chief executive and chief financial officer, respectively. Shareholders also voted Chewy Inc.

co-founder Ryan Cohen as chairman and elected an all-new slate of directors.

The changes came after a month-long social media-fueled trading frenzy that helped GameStop’s share price soar in early 2021. After hitting a high of around $350 per share the last year, the stock fell below $90 a share this week, amid fears the company hasn’t done enough to reverse its fortunes.

In a bid to improve GameStop’s prospects, Cohen has worked to make the company more tech-centric, such as launching a redesigned app and adding more fulfillment centers for faster deliveries. quick online orders. Additionally, GameStop said last month that it plans to enter the trendy but unproven space of non-fungible tokens by launching a marketplace to buy and sell the digital certificates in partnership with an Australian blockchain startup. .

GameStop has announced plans to launch its NFT Marketplace by the end of the second quarter.

The company reported a net loss of $147.5 million for its fourth fiscal quarter, down from profits of $80.5 million a year earlier. On a per share basis, the company posted a loss of $1.94, compared with a gain of $1.19 per share a year earlier.

Write to Sarah E. Needleman at [email protected] and Denny Jacob at [email protected]

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