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GameStop continues to fall apart – The Motley Fool



Video Game Dealer GameStop (NYSE: GME) reported profit for the fourth quarter after the market closed Tuesday. It wasn't beautiful. While comparable sales rose in the quarter thanks to a calendar change and the time of Call of Duty total sales from continuing operations declined 7.6% year-on-year.

In addition to sales, active write-downs and other non-recurring items totaled DKK 334.5 million. USD led to a huge net loss. With the exception of these fees, the adjusted net income fell by Share by 17% to $ 1.45.

  A man in business clothes is lying at a desk with his hand on his face while looking at a piece of paper.

Image Source: Getty Images.

Almost nothing went right

Sales in most of GameStop's segments fell in the fourth quarter. New hardware sales fell 9.8%, new software sales fell 7.8%, and the highly profitable pre-owned segment saw a fall of 21.3%. Both accessories and collectibles were up with two-digit percentages, but none of the categories are as profitable as the cash-used gaming industry.

The decline in used gaming industry is particularly worrying. The segment had a gross margin of 42.4% in the fourth quarter, the highest among GameStop's segments, except for the small amount of digital revenue generated by the business. As console games change from physical discs to digital downloads, the concept of used games is in danger of disappearing.

Used and valued video game products were responsible for more than a third of GameStop's gross profit in 2018, so this ongoing contraction is a major problem. Gross profit from the segment fell by 17% in 2018.

GameStop booked $ 413.4 million. Goodwill impairment impairment value in the fourth quarter together with $ 12.9 million. Of additional intangible impairments. This was partly offset by a gain associated with the company's divestment of its Spring Mobile business. The net result was a net turnover of DKK 188 million. Kr. For the quarter. For the whole year, GameStop wrote nearly $ 1 billion of goodwill.

Awful guidance and cost savings

GameStop does not expect things to improve this year. The company sees tax 2019 comparable store purchases declining by 5% to 10%, with total sales falling by the same percentage. The company failed to provide earnings guidance due to planned cost savings and the recent hiring of a new CEO. But it must be safe to say that the adjusted earnings will fall this year.

GameStop plans to improve its annual operating profit by approx. $ 100 million as part of its cost savings and performance improvement plan. This will not have a major impact on the 2019 taxation results due to the timing of the initiatives. Focus areas include the efficiency of supply chains, operational improvements, cost savings, and pricing and optimization of advertising.

  Scissors cut a piece of paper with the word cost.

Image Source: Getty Images.

The problem with this plan is that GameStop can & # 39; t cost cut the way out of the mess it finds itself in. We are in the last innings of the era of physical game discs. GameStop as a business makes no sense if most download games, and that seems to be where the industry is heading. Cost savings do not work if the company circles drains. Ask Sears. Or RadioShack. Or Circuit City.

The good news is that GameStop's balance looks good after selling $ 700 million from its Spring Mobile business. The company has $ 1.6 billion in cash and only about $ 800 million in debt, and it plans to use some of these cash to retire $ 350 million of debt this month. This net cash position buys the company's time and it is still profitable on a customized basis.

But GameStop's problems will only get worse as gaming subscriptions and streaming services spread. If you think the used gaming industry is struggling now, wait for even more console gamers to leave physical disks.

It's hard to see much of a way ahead of GameStop that doesn't involve a completely different business model.


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