GameStop Still Struggling With Its Turnaround Plan

GameStop’s third quarter earnings report today shows it still has a lot of work to do before its turnaround strategy pays off.

While GameStop
GME
narrowed its loss from the third quarter of 2021, it missed expectations for earnings and revenue. Revenue was down more than 8% compared to the third quarter of 2021, at $1.186 billion. Net loss for the quarter as $94.7 million, an improvement over the prior year’s loss of $105 million. The adjusted loss per share was 31 cents per share.

Analysts had expected an adjusted loss of 28 cents a share on sales of $1.345 billion.

The company also revealed that while it still remains essentially debt-free, it is rapidly burning through the cash it raised when its stock price skyrocketed during the meme stock craze.

CEO Matt Furlong, in brief comments announcing the results, mentioned GameStop’s stockholders as one of the company’s biggest assets, saying they “continue to demonstrate unrivaled enthusiasm and support as we work to transform the company.”

Shareholders continued to show some of that support after the earnings were announced, but it was less enthusiastic than previously. GameStop stock, which had closed at $22.26, down 4.83% for the day, bounced back a bit in after hours trading, but as of 8 p.m. hadn’t regained what it had lost Wednesday before the earnings announcement.

Wall Street’s main gripe with GameStop since activist investor Ryan Cohen and a new management team took the reins 18 months ago has been that Furlong and his executives haven’t shared many specifics about their turnaround strategy, and have not subjected themselves to analyst questions during the earnings calls.

Furlong, in today’s call, said GameStop’s “two over-arching priorities” currently are “achieving profitability in the near-term” and “driving pragmatic growth over the long-term.”

GameStop announced a round of layoffs in July and reportedly laid off a number of tech and blockchain employees recently.

Furlong, in his remarks, said the company is “in the process of aligning corporate costs to our go-forward needs.” A large portion of those cost savings, he said, would result from “reductions in corporate headcounts.”

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GameStop, Furlong said, plans to maintain a sizeable cash position to protect itself from a challenging economic environment. That cash position will also, he said, give it the option to explore acquisitions “if a strategic asset or complimentary business becomes available in the right price range.”

The earnings report, however, showed that cash and cash equivalents on hand declined from $1.413 billion in the third quarter of 2021, to $803.8 million in the third quarter of this year. The report lists a new category, marketable securities, not listed in the 2021 report, at $238.3 million. GameStop includes that category in its cash on hand number, bringing it to $1.042 billion.

Furlong said the company now is well-positioned to pursue new opportunities in gaming, as well as in the high-potential categories of collectibles and pre-owned merchandise.

Foot traffic analytics firm Placer.ai reported this week that GameStop enjoyed big increases in customer traffic in its stores during November. During the week of Nov. 21, which included Black Friday, store visits were up 23.1% over the previous week, GameStop’s biggest weekly gain since early August, according to Placer.ai.

The bad news for GameStop is that Placer.ai data from last year shows that visits for all of November were down 2.6% from November 2021.

GameStop’s efforts to become a bold innovator in gaming and retail hit a bump in early November, with the bankruptcy of cryptocurrency exchange FTX, two months after GameStop announced it had entered into a partnership with FTX and that it would be selling FTX gift cards in its stores.

On November 11 GameStop tweeted that it had ended the partnership and that it would refund gift card purchases.

Furlong didn’t refer to the FTX partnership in the call, but said “the company’s exposure to digital assets has been very modest, thanks to risk management efforts.”

“The company has proactively minimized exposure to crypto currency risk throughout the year and does not currently hold a material balance of any token,” Furlong said.

“Although we continue to believe there is long-term potential for digital assets in the gaming world, we have not and will not risk meaningful stockholder capital in the space,” he said.

Furlong, in the call, said stockholder passion for GameStop is a “major tailwind” in the company’s favor. If that tailwind weakens, the headwinds may prove too strong for GameStop.