GameStop (NYSE:GME) share prices dropped 16.3% on Tuesday morning. Following massive layoffs and nationwide brick-and-mortar store closings last year, the video game retailer had hoped to gradually manage its way back to profitability, and perhaps more importantly, relevance.
So what caused the most recent drop in investor confidence? The answer is simple: holiday sales. Or rather, the lack thereof.
Investors turned more sour than usual on the enterprise as soon as GameStop shared its quarterly sales report.
Despite all of the active measures GameStop’s leadership took to increase profits last year, the company suffered a massive hit during the usually lucrative Christmas season.
In the holiday quarter alone the retailer’s net sales fell to a worse-than-expected 25.7%. That’s an even bigger drop than similar physical store sales which fell 23.2% overall. The total haul for the quarter ended at $1.44 billion, a far cry from the $1.62 billion that analysts were predicting after the drastic cuts GameStop took to its overhead in 2019.
GameStop CEO George Sherman released a statement saying, “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. 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. On a positive note, we continued to see growth in the Nintendo Switch platform, which supports our view that our sales will strengthen as new consoles and innovative technology are introduced.”
It’s interesting to note that Sherman singled out the Nintendo Switch as seeing growth in its physical sales. Indeed, both Sony and Microsoft have been aggressively pushing reliance on digital releases for their upcoming consoles and touting digital game streaming as an alternative to the second-hand video game market that GameStop heavily relies on.
Other companies such as Blockbuster and Toys R Us posted less dramatic sales losses than GameStop before they went out of business and filed for bankruptcy. While that doesn’t necessarily mean GameStop’s fate is sealed, it doesn’t bode well for its future prospects.
