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GameStop’s Fiscal Year Report: 150+ Shops to Close, Sales Drop and Shares Sink

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Mar 24, 2017
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At the time of writing GameStop’s (NYSE: GME 23.65 1.07%) shares are down $3.11, over 12%, from Thursday’s closing price. This comes following the report of the company’s 2016 Q4 and fiscal year figures. These reports indicated a year largely below predictions.

The outlook for 2016 was set at between 0 to +3% of revenue with a net income of $407 to $423 million. Comparable store sales were predicted at -3 to 0%. These figures have been missed quite dramatically. Revenue has dropped 8.1% to $8.61 billion with a decline of comparable store sales of -11%. The result of this fall left the company with profits down 12% to $353.2m.

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Such a decline has primarily been a result of the company’s core business: games. As we’ve covered a number of times in the past, physical sales of games are falling. Diversification is key, and GameStop are successfully managing this; it just takes time.

The Costs of Gaming, Branching Out

There’s little doubt that the fall in games sales are hurting the company. However, what has been a boon is the growth of collectibles as well as the expansion into technology. Video game hardware, software and even digital sales all fell year on year. The largest drop was with hardware, falling from $1.94bn to $1.39bn. Software coming close with a fall from $2.9bn to $2.49bn.

Fortunately for GameStop, they have a variety of brands. Particularly strong for the company have been those that work in mobile and technology sectors. Spring Mobile and Simply Mac have proven to be strong earners for the company, with revenues increasing from $534m to $814m.

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CEO Paul Raines states “GameStop’s transformation continued to take hold in 2016, as our non-gaming businesses drove gross margin expansion and significantly contributed to our profits. Meanwhile, the video game category was weak, particularly in the back half of 2016, as the console cycle ages.”

What has worked well for Gamestop is the growth in collectibles. In our previous pieces on the gaming market, it’s been well documented that the peripheral areas have, as a whole, done well. Soundtracks, films and more are on the rise. The largest rise has been through collectibles, clothing and other related items.

GameStop – Looking to 2017

It makes sense, then, that GameStop will be opening 35 new collectible stores. In addition, the company also aims to open around 65 new technology stores. However, these store openings will be countered with the aim of closing between 2 to 3% of its global stores. This will equate from 150 to 225 stores closing, a not insignificant amount.

What wouldn’t be a surprise is these stores were the traditional GameSpot stores, rather than Spring Mobile or Simply Mac. The figures simply indicate the shrinking percentage of total sales the video game related stores are bringing in, especially compared to the large growth in technology and collectibles.

Predictions also highlight a negative view on the current fiscal year. Revenues are predicted to be between -2 to 2% year on year with comparable store sales, excluding technology stores, to stay flat or fall by up to 5%. At best, revenues are expected to remain flat. With expectations being on the negative, GameStop will stop providing quarterly reports. This was highlighted by the company’s CFO who stated “We believe that providing only annual guidance will reduce investor distraction as we continue to diversify the company and seek to maximize long-term shareholder value.

There’s certainly large issues for the company. Game sales are declining due to high competition from online retailers as well as high street supermarkets like Walmart (NYSE: WMT 75.43 0.51%) that have the ability to undercut them. However, positives for 2017 come from the launch of the Nintendo Switch (TYO: 7974 27,465.00 -0.56%) and the future launch of Microsoft’s (NASDAQ: MSFT 67.83 -0.13%) Project Scorpio.

GameStop currently operate more than 7500 stores globally, across 14 countries. In addition, they have a sizable internet presence with the browser-game website Kongregate as well as a large print publication with Game Informer. With looks to expansion in technology and collectibles in the future, the company has the potential to look more varied than ever before.

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