GameStop is still struggling, that cannot really be doubted, and even the executives at the struggling company are forecasting slow growth at best. GameStop had its Q2 earnings call this week, revealing plans for the future, which say that the company plans to close around 180 to 200 stores globally. The company reps were insistent that 95% of the stores are profitable, and that adjusted losses aren’t as high as one would think from just looking at the raw numbers.
It’s important to keep in mind that the company is talking about Adjusted Net Loss, a financial method for reducing reported losses in a given quarter by distributing losses throughout the year. The net loss in Q2 has been stated to be at $415 million, whereas adjusted net loss is posted to be around $32 million. This means that unrealized losses from financial derivatives, expansion costs, deferred income and taxes and other elements that would be considered financial losses have been moved off of the books. The company is still losing this money, but it gives GameStop more time to generate revenue to pay down debt by doing things this way. And a big part of staving off adding more debt is to identify and close the most unprofitable stores. It’s a common tactic for any struggling company, but it may be too late for GameStop.
These losses fit in-line with previous reports as well, which detail losses north of $400 million. GameStop recently suffered a major drop in stock value, amounting to a 40% loss in stock value, which many analysts heralded as a sign of doom. The company isn’t currently seeking a buyer, and will likely be looking to stave off bankruptcy with this revival strategy.
The closures of up to 200 stores is being done to remove unprofitable stores from the company, and to “improve our overall profitability by de-densifying our chain.” Other areas of fat trimming for the game company included layoffs, of an estimated 170 GameStop employees and seven members of the Game Informer staff. This accounts for 14 of the workforce within the total company.
Rumors still persist around closures being more rampant than this report suggests, as further statements say that the full plan for the future will “yield a much larger tranche of closures over the coming 12 to 24 months.” And with more than 5700 stores worldwide under its portfolio the plan will take a few years to come to full fruition. In short, expect hundreds more closures throughout 2019 and 2020.
“We expect our year-over-year sales to be down over the next three to four quarters reflecting the end of [the console] cycle,” said GameStop CFO James Bell. Adding further, he detailed that the company believes the ending of the current console generation is a major culprit for recent problems in revenue:
“Compounding this negative impact on sales is the fact that console makers have confirmed the launch earlier than they have in the past. We anticipate that this will lead to much lighter title slate through the rest of 2019 and early 2020 given the end of the cycle timing for current consoles. As a result, at this time we expect a percentage decline of comparable same-store sales for 2019 to be in the low teens, which includes a difficult comparable sales challenge from last year, as we’re up against blockbuster titles like Red Dead Redemption 2, 2018’s number one volume title, without a comparable launch in 2019.”