GameStop shares slammed as sales decreased 27% during the holiday season

Video game retailer GameStop continued its financial nose dive over the 2019 holiday season, according to the company’s most recent sales report. Total revenue during the nine-week period hit $1.8 billion, which is a massive 27% drop over the same period in 2018. In a statement, CEO George Sherman placed blame for the poor showing on the impending console transition, and perceived declines across the greater market.

“We expected a challenging sales environment for the holiday season as our customers continue to delay purchases ahead of anticipated console launches in late 2020,” Sherman said. “However, the accelerated decline in new hardware and software sales coming out of black Friday and throughout the month of December was well below our expectations, reflective of overall industry trends.”

The problem with this line of thinking, as many analysts see it, is that GameStop’s collapse over the last couple of years isn’t reflective of declining video game sales, but of poor management and a failure to adapt to an increasingly-digital marketplace. Business writer and GameDaily freelance contributor Mike Futter said as much in a Twitter thread on Monday.

“GameStop tanked in the holiday quarter in ways that even the most pessimistic of us couldn’t have anticipated,” he wrote. “This is very bad news, but management continues to pin this on end-of-cycle downturns without acknowledging they are underperforming everyone else.”

As a result of the poor holiday season, GameStop has once again lowered its guidance for fiscal year 2019; the company is now expected to incur a 19% to 21% loss for the 12-month period. For Futter, this outlook is optimistic given the relative lack of big releases in the early part of the year. 

“I think that’s optimistic given a softer slate in the early part of this year compared to last year,” he tweeted. “GameStop might make it to this fall’s new systems, but I expect we’re going to see major layoffs in the near term as Sherman and his new management team realize they are running out of time.”

The plummet has been reflected in GameStop’s stock prices, according to market insights publication Seeking Alpha. As of this writing, GME shares have fallen by over 14% since the financial report was released and are sitting at a paltry per share price of $4.66. As a result, investment analysts are recommending to avoid GME altogether, citing that the valuation is too controversial.

This isn’t the first time Sherman blamed tanking sales on the impending console transition. Last month during an earnings call, he told shareholders that the wrapping up of this hardware generation has slowed sales. There is a bit of a silver lining, though: GameStop’s collectibles business has remained largely positive, and the Nintendo Switch appears to be performing well for the retailer. For Sherman, this “supports our view that our sales will strengthen as new consoles and innovative technology are introduced.”

For analyst group Wedbush Securities, there is some optimism regarding GameStop’s future. If the company can lean harder into its collectibles segment while streamlining its store footprint, then there may be potential to right the ship. This strategy not only leverages what little strength GameStop still boasts, it also makes the retailer less beholden to the looming form of digital game distribution. Moving away from used and physical game sales, Wedbush says, should be the onus of GameStop in 2020. 

“A streamlined store footprint, greater cost discipline, higher store traffic from new consoles, and a growing collectibles business should position the company for profitability in future years,” Wedbush’s report reads.

Even so, it’s hard to be optimistic about GameStop’s future. Sherman’s refusal to acknowledge the drivers of the company’s decline points to one of two things: he is either willfully ignoring the root causes of the troubles, or he is attempting to make GameStop look attractive for prospective buyers.