GameStop’s earnings fall short of Wall Street hopes, sending its stock tumbling

Grapevine-based video game retailer GameStop underwhelmed investors and skipped the usual Q&A in its first earnings report since the company became the darling of day traders in a Reddit-fueled stock-buying frenzy in January.

GameStop reported $80.5 million in profit and $2.1 billion in sales in the fourth quarter of 2020, coming in just under analysts’ expectations. The company’s revenue for the three-month period that ended Jan. 30 represented a 3% decline from a year ago.

Shares of GameStop were still up 900% from the start of the year by the end of last week and soared as high as $483 a share during the January frenzy. But shares fell nearly 7% over the course of trading Tuesday, closing at $181.75. The falloff continued in after-hours trading, dropping below $160 by 6 p.m. CT.

The retailers’ stock performance has been so hyped that listeners dialing into its earnings webcast hit capacity Tuesday afternoon. What they heard was that the company’s revenue plummeted 21% last year during the pandemic to $5.09 billion. But the company did cut its annual loss to $215 million, down from $470.9 million the previous year.

In an announcement billed as bolstering the company’s transition to e-commerce sales, GameStop announced a number of new executive hires. Google and Amazon veteran Jenna Owens will become its new chief operating officer, beginning next week. Owens joins the company off her most recent stint as director and general manager for distribution and multichannel fulfillment at Amazon.

GameStop has also hired former Zulily vice president of supply chain technology Ken Suzuki as its new VP of supply chain, and former Chewy Inc. vice president of e-commerce Neda Pacifico as its new senior VP over e-commerce.

GameStop closed 693 retail storefronts in 2020 – a 12% reduction of its global footprint. GameStop has been shrinking its retail presence for some time, and the hundreds of store closures have been expected since CEO George Sherman first discussed the acceleration of shutdowns in 2019.

It still operated nearly 3,200 stores in the U.S., including 326 in Texas at the end of 2020. The company has 1,848 stores with leases expiring this year.

GameStop plans to operate with fewer stores as it attempts to funnel store customers to its website, which saw a 191% increase in sales last year. And the retailer appears to be making progress toward that shift, noting that its online sales accounted for 34% of all sales in the fourth quarter compared with 12% during the same time in 2019.

Over the course of the pandemic, online purchases accounted for one-third of GameStop’s sales, according to a company filing.

In a statement Tuesday, Sherman didn’t address the Reddit-fueled stock rally directly but nodded at activist investor Ryan Cohen, saying the company has “added important experience to our board by appointing several new directors with backgrounds in corporate finance, e-commerce and technology and subsequently established a strategy-focused committee to accelerate our transformation.”

Cohen, the founder of Chewy Inc., energized investors when he was added to GameStop’s board of directors in early January. Cohen is leading the new strategy committee aimed at transforming the company to succeed in the digital era. The committee took credit for recent hires and the resignation of GameStop’s chief financial officer, Jim Bell.

On Tuesday, GameStop said it was parting ways with another executive – chief customer officer Frank Hamlin, according to a filing. Hamlin will continue in his current role until March 30.

For the rest of 2021, the company said it will look to capitalize on a new generation of consoles and game titles expected to publish this year.

“Our emphasis in 2021 will be on improving our e-commerce and customer experience, increasing our speed of delivery, providing superior customer service and expanding our catalogue,” Sherman said in a statement.

Video game console and hardware sales jumped 121% in February over 2020 levels, according to an analysis from NDP Group. The increase in sales, led by the PlayStation 5, which is now the fastest-selling console in history, could bring a needed windfall for GameStop.

While sales of the new PS5, Xbox One X and still-popular Nintendo Switch consoles promised to provide a holiday boost in revenue for the retailer, ongoing supply chain issues over the course of the pandemic have hampered the amount of inventory retailers and big-box stores can keep on shelves.

The new consoles also come in versions that don’t require a physical game disc and instead include a hard drive for storing digital games purchased directly from publishers like Microsoft and Sony – something GameStop has noted in filings could continue to eat into its share of the video game market.

GameStop ended the year with $362 million in debt, down from $420 million in 2019. In July, it also sold its corporate headquarters in Grapevine, as well as its Canadian and Australian HQs, and leased the spaces back.