GameStop Tumbles on Low Holiday Sales, Drops 2019 Guidance

Due to a steep drop in sales, one gaming retailer had a less-than-magical holiday season.

On Monday (January 13), Texas-based GameStop (NYSE:GME) reported that its total global sales hit US$1.83 billion during the 2019 holiday period, a 27.5 percent drop year-over-year. The company considers the holiday stretch to be the nine week period that this time ended on January 4, 2020.

Shares for the video game retail chain fell over 10 percent on Monday during the extended trading session based on the results.

GameStop CEO George Sherman chalked up the poor performance to a fall in new hardware and software sales from Black Friday through December, saying that purchasing during this period, especially in December, came in well below expectations.

“We expected a challenging sales environment for the holiday season as our customers continue to delay purchases ahead of anticipated console launches in late 2020,” said Sherman in a press release.

As a result, the executive continued, GameStop is slashing its earnings expectations for the 2019 fiscal year once again.

The company first walked back its 2019 guidance in its Q3 report, noting that comparable store sales would see a decline in the “high-teens.” That came after the company reported in its initial 2019 outlook, released in April of last year, that its comparable store sales would see a decline of 5 to 10 percent.

Now, stores sales are expected to decline in the range of 19 to 21 percent for the 2019 fiscal year.

Consumer spending on hardware dropped overall in the gaming sector throughout 2019.

As part of its quarterly report on the sector, released this past November, the NPD Group points out that the game hardware market fell 22 percent in the third quarter of 2019 to US$575 million, despite the ongoing success of Nintendo’s (OTC Pink:NTDOY,TSE:7974) Switch system.

At the time of the report’s release, video game hardware sales were down 23 percent year-to-date to a total of US$1.9 billion.

Sherman said he now expects the current problems facing the retailer to flow into the next fiscal year.

However, GameStop has a long-term plan in place. “(The plan is) to optimize profitability and increase new revenue streams in advance of new console introductions for holiday 2020,” he continued.

The video game retailer has come against a series of pitfalls in the past few quarters.

Lower hardware sales also proved to be a problem in Q3, when Sherman blamed a dip of 25.7 percent in total global sales on the trend of slower hardware sales. He said gaming systems were becoming obsolete and consumers were holding off on spending to wait for the next generation of gaming consoles, like those recently teased by Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT).

In addition, the company laid off over 120 corporate employees in August, IGN reported, in an effort to improve its financial performance.

Lastly, in a September earnings call, Sherman announced the company was looking to close 180 to 200 underperforming stores globally by the end of the fiscal 2019 year.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.