Saturday, April 17, 2021

What we learned from the weird, truncated call on GameStop earnings

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It’s not often that a call for results – usually aimed at shareholders and full of jargon and boring numbers – draws a crowd, but after three months of GameStop, its call for results for 2020 has been a big hit. exception. Sadly, that was a far cry from the spectacle listeners might have hoped for, although this and other related events provided continued context on the game retailer’s direction. If you tried to log in, you might have had trouble hearing what was going on. due to the fact that the event was at full capacity – a rarity for a call for earnings in the play space. And if you managed to sneak in, you might have noticed another quirk. Normally, calls of this nature last about an hour, with the first half of the year being an overview of the company’s financial statements and any announcements that executives want to make that are of interest to shareholders. The second half is devoted to a question and answer session where shareholders can ask questions of executives and receive answers of some nature, although they tend to be vague or indirect.

But this call for results, which was again a call to give shareholders an overview of the situation of the company through all of 2020, lasted 20 minutes, with no questions and answers or meaningful announcements of any kind.

We understand both why people might have expected more from GameStop, but also why it was so low-key. The company was already living a terrible year between its already declining revenues and the lack of significant support from investors before COVID-19 decimated the business. The next generation also hasn’t done enough to help matters. Then, in January, an absolutely wild short squeeze sent some stock to the stratosphere. All the while, behind the scenes, a group of activist investors have slowly taken control of the board, attracting new visionaries like Chewy CEO Ryan Cohen as old names, as CFO Jim Bell, left.

So what did we learn from this strange truncated earnings call?

Things are improving for GameStop … but very slowly

First of all, it’s worth considering the actual financial results that GameStop was reporting. The shared results concerned the fiscal year 2020, that is to say from January to December 2020, as well as the results of the fourth quarter: therefore from October to December 2020. It should be noted that although the surge in shares ended up having some sort of real, meaningful and meaningful impact on the way GameStop does business, we probably wouldn’t have heard of it during this call anyway, as it was irrelevant to the numbers that GameStop reported.

GameStop’s fourth quarter was supposed to be a big turnaround for the company – for two years now, it’s been building the idea that much of its decline was due to the end of a console generation. But Q4 wasn’t quite the gangbuster selling bonanza GameStop might have hoped for. For example, its net sales were $ 2.12 billion, up from $ 2.19 billion in the same period last year. GameStop says it sold less than last year due to the fact that it closed a bunch of stores and therefore had fewer slots to move inventory (and also less spend as a result). This may be true, but it should also be noted that sales for the fourth quarter of last year were also quite disappointing and were also partially attributed to a smaller store base. Basically GameStop has been saying the same thing for a few years now on this front and nothing seems to have changed.

All that to say: nothing GameStop is currently doing that is making it more money.


Its full-year net sales have been in a similar boat, at $ 5 billion compared to $ 6.47 billion for all of 2019. Again, GameStop has an excuse here: fewer stores and the end of the cycle. from the console are a tune we’ve heard. for quite some time now, but 2020 has also been the year of the COVID-19 pandemic, and temporary store closures due to this have rocked the business for months. Yet again, that $ 6.47 billion was down 22% from the year before, so that’s hardly the headwind GameStop might have hoped for.

That said, another number worth highlighting is that GameStop’s cost-cutting measures appear to be having an impact. In 2018, GameStop recorded a net loss of $ 673 million. In 2019, that was improved to a net loss of $ 471 million. And in 2020, that net loss was improved again to $ 215 million. All that to say: nothing GameStop does now is making him more money, and while his cost-cutting measures have worked for him so far by slowing the bleeding of money, he probably can’t. reduce too much without a significant change in strategy.

This is where the board comes in.

Make the executive mix

We’ve known for some time that GameStop is going through a map disruption, starting with a series of departures and executive appointments taking place in 2019 and 2020, and most recently with the additions of Alan Attal, Ryan Cohen and Jim Grube. CFO Jim Bell resigned last monthAnd then, the same day he released his annual results, another GameStop veteran took his leave: Frank Hamlin.

Hamlin has been GameStop’s CCO since 2019 and has been the primary architect behind the company’s attempt to create concept stores with an emphasis on community gaming spaces, he tested in Tulsa, Oklahoma sadly just before a deadly global pandemic.Interestingly, Hamlin’s contract (publicly visible via the SEC filing) states that his termination occurred for one of five reasons: his salary was reduced, his authority was reduced, GameStop violated his contract. ‘somehow it was relocated or GameStop was sold. It’s unclear why Hamlin left, but it’s clear he’s getting a big payout as a result – at least $ 2 million, just for leaving the company. Jim Bell has already received around $ 2.8 million, which may give us an indication.

And there are other board changes going on. The previously vacant COO position (emptied after Rob Lloyd left in 2019) has now been staffed by Amazon veteran Jenna Owens, and two more executive hires have also been announced: Neda Pacifico as Senior Vice President of Ecommerce and Ken Suzuki as vice president of supply chain systems.

Any of these changes on their own would likely be a pretty uneventful leadership move, but the large payments to the old guard at the start combined with a major board reshuffle and new hires just keep paying off. more credibility to the idea that the winds of change are blowing, even if GameStop still (yet!) has not said precisely what these changes would be.

E-commerce, possibly

Even without clear statements from GameStop as to what is going on, there are clues. More and more signs point to a big change in e-commerce ahead. Pacifico’s appointment, along with various vision statements from people like Cohen and other new board members, indicates that is what we believe. But there were a few more clues to its annual profits that bolster this theory.

For one thing, online sales are pretty much the only division of GameStop that is doing well. Going back to its financials, e-commerce sales grew 175% year-over-year from October to December 2020, and 191% for the full year, accounting for 30% of total net sales of the company. 30% may not seem like an overwhelming percentage, especially given the likelihood that that number has been increased by the pandemic, but it’s a pretty significant amount for a business that has historically been known to be primarily a physical business.

It should also be pointed out that GameStop is still talking about closing more stores. According to the latest tally, it has closed more than 1,000 stores globally in the past two years, or 12% of its total stores worldwide, including all of its Nordic businesses, and GameStop says it lobbied to move these lost sales online. Although no one during the call for results gave details of any future closures to come, it was indicated that GameStop was considering future closures in its European operations.

GameStop wants to see itself as a larger tech company that is specifically about gamers.


But the closest thing to a clue to GameStop’s future direction came from a jargon-filled quote from CEO George Sherman on the call:

“Overall, we are satisfied with the work we have done to meet our goals and stabilize and strengthen our business activities. This work will continue, especially as we explore options for our European operations, which may include further store closures, exiting non-profitable businesses, or investing in e-commerce capabilities. As we move forward, we strive to transform ourselves into a tech-obsessed company. the customer that gamers delight. We are working to create a differentiated customer experience that allows us to access new customers and engage more with old ones and reactivate old ones. “

That’s a lot of PR talk, sure, but what he’s basically saying is he’s happy with the way the cost cutting has gone so far (which, again, , required the closure of over 1,000 stores and the layoff of all of those employees) and intends to do more in the future, while investing in e-commerce infrastructure and technology. GameStop, he says, wants to see itself as a larger tech company that’s specifically about gamers – something he points out a bit later by mentioning that GameStop also wants to start selling more gaming-side products, like monitors. , televisions and mobile game items. He also reaffirmed the importance of investing in technology, as well as the need for GameStop to improve its distribution network – that is, how it gets the games people buy from them – and to reduce its distribution. dependency on console cycles.

Many people were clearly hoping for more concrete and exciting news from GameStop’s conference call, and many were clearly disappointed given that GameStop stock has plunged into after-hours trading (it’s still at $ 181.75 a share). at the time of this writing, however, so not entirely meaningful a dip). Ultimately, GameStop’s message is the same as it’s been over a year or so: Dramatic changes are clearly happening behind the scenes, and a critical pivot to something ecommerce-related is in the works. Both will be needed to save the business in the long run.

But for now, GameStop is sticking to its ongoing endurance test, supported by a renewed wave of confidence from new executives, activist shareholders and many people perhaps more interested in its stock. commercial than by the action on its shelves.

Rebekah Valentine is a journalist at IGN. You can find her on Twitter @duckvalentine.



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