Reactionary measures such as the halting of the company's dividend certainly didn't do the stock any favors Wednesday morning either. The stock was down nearly 40% around midday.
GameStop's total global sales declined 13.3% to $1.5 billion for the quarter ended May 4. Part of the problem within sales seems to stem from the fact that companies such as Microsoft (MSFT) and Sony (SNE) haven't come out with a new gaming console in a while, diminishing the demand to make a new purchase. Still, I am not sure that would be enough to stop the bleeding at GameStop. There are a plethora of options when buying an Xbox, and I suspect they will only become even more abundant down the road.
Total comparable store sales decreased 10.3% in the quarter. Hardware sales from consoles are definitely the area of most pain for GameStop right now. New hardware sales decreased 35% year over year, while software sales declined 4.3%.
An area of light was accessories, which increased 0.6% from controller purchases. Try as they might, those pesky controllers always break.
One of GameStop's strengths used to be its sale of used/refurbished products. I remember as a kid being able to buy games for $10 rather than $50. Today those sales appear to be taking a whack from online competition. Pre-owned sales decreased 20.3%.
All in all, there's a lot of trouble here.
When the company reported Wednesday morning, the initial focus was on the positive earnings. GameStop did not make much money, but they did beat estimates that had expected losses. The company reported earnings of $0.07 per share. Many had expected to see losses of $0.02 per share.
This earnings beat, however, doesn't make up for the fact that operating and net income suffered greatly. Operating income decreased to $17.5 million from $46.5 million a year earlier. Net income was $6.8 million compared to $28.2 million last year. The $0.07 in diluted earnings per share derived from that net income marked a steep decrease from the $0.28 per share reported in the first quarter of 2018.
All in all, there are a lot of problems at GameStop. The company is stuck in the middle of a rapidly evolving industry and it's not very clear where the gaming retailer fits into that picture. It could start pushing its digital presence further, but there are so many rivals on that front. And on the bricks-and-mortar side GameStop is competing with the powerhouse known as Walmart (WMT) .
GME stock doesn't offer much appeal. The company voted to eliminate its dividend payment in an effort to save cash. That, in itself, was half of the reason the stock had any draw in the first place.
Looking forward, the company's new guidance is not promising at all. GameStop is forecasting full-year fiscal 2019 sales declines of 5%-10% and expects comp store sales to also decrease 5%-10%.
GameStop didn't provide any specifics on its expectations for GAAP earnings, but it did reiterate its cost savings initiatives, which are expected to improve annualized operating profits by $100 million. However, unless the company corrects the sales issue, those are short-term fixes to an inherently bigger problem.
You really couldn't have a worse combination of business attributes. GameStop is primarily a bricks-and-mortar business, operating in an industry that is shifting more and more to downloads and online ordering of consoles. I'm not a big gamer myself, but from my point of view the industry seems to be at a crossroads that GameStop wasn't ready for.
I would be very cautious here. GME might show some surprising earnings on a per-share basis thanks to financial maneuvering, but the bigger picture seems to be a declining entity in a tough industry. There is a long way to go for GameStop to revive itself.