GameStop Continuing Discussions with ‘Third Parties’, Posts Q3 Loss

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GameStop Corp. is continuing “discussions with third parties about potential transactions” as its board moves forward with a strategic review, interim CEO Shane Kim said in releasing Q3 earnings.

GameStop won’t hire a new CEO until the review is complete, Kim said. Among the options being considered is taking the company private; Reuters has reported that equity firms Tiger Management and Sycamore Partners among those interested.

GameStop recently reached agreement to sell its 1,284 Spring Mobile AT&T Wireless stores to AT&T reseller Prime Communications for $700 million. Proceeds from the sale, which is expected to close in January, creates a “tremendous opportunity” for GameStop to expand its collectibles business, which posted “strong growth” in Q3, Kim said.

“We feel good about the options available to us and we’ll continue to be deliberate in choosing the best path forward,” Kim said.  “I think we have a pretty clear sense of how we need to evolve the company and we’re going to dovetail that with the search for the new CEO in terms of his or her vision” for what GameStop “can and should do moving forward.”

GameStop reported a $488.6 million net loss in Q3 ended Nov. 3, reversing a $59.4 million profit a year earlier as it took a $587 million asset impairment charge link to goodwill that was triggered by a “sustained decline” in its stock price and market value, the company said.

Revenue rose 4.8% to $2.1 billion on a 2.1% increase in same-store sales. The jump in sales was largely driven by a 12.8% gain videogames hardware ($349 million) and a 10.9% increase in new software ($720.7 million), that was led by new videogame titles Take-Two Interactive’s “Red Dead Redemption 2” and Sony’s “Spider-Man”.

Sales of collectibles rose 11.7% to $154.6 million, while accessory revenues jumped 32.6% ($396.9 million) on the strength of products sold for use with battle royale games such “Fortnite”, company executives said. The gains were partly offset by a 13.4% drop in sales of pre-owned titles ($180.8 million).

At the same time, despite strong sales on Black Friday and Cyber Monday, GameStop cut its forecast for Q4 earnings to $2.55-$2.75 from $3-$3.35 due to the “underperformance” of Activision Blizzard Entertainment’s “Call of Duty: Black Ops 4”, sports titles (Electronic Arts’ “Madden NFL 19” and Take-Two Interactive’s “NBA 2K19”) and Bethesda Software’s “Fallout 76,” Kim said. As a result, Q4 sales also will “skew more towards” lower margin videogame hardware “than originally planned,” which will weigh on earnings, CFO Robert Lloyd said.

Contact:

GameStop, Robert Lloyd, CFO, 817-424-2000, robertlloyd@gamestop.com