M&E Connections

GameStop Execs: Switch Provided Q3 Boost, Xbox One X Off to Strong Start

Continued strong demand for the Nintendo Switch hybrid console and portable video game system provided retailer GameStop with a significant lift in its third quarter (ended Oct. 28), according to company executives. They also reported initially strong demand for Microsoft’s new Xbox One X 4K console.

The Q3 results were “driven by continued momentum from the Nintendo Switch and a stronger software lineup then last year,” CFO Rob Lloyd said Nov. 21 on an earnings call. GameStop’s Switch hardware allocation in Q3 “led to an in-stock position by October” and “demand remains strong,” he said, adding the retailer expects to see “continued strength in demand for Switch through the holiday sales season.” GameStop has “leading Switch hardware and software market share in the U.S. and in most of our international markets,” he also said.

But many U.S. consumers may have a hard time finding a Switch console at retail stores in time for Christmas, according to the retailer. “Our expectation is that demand for Switch will continue to outpace supply for the remainder of the holiday season and for this to be one of the most sought-after gifts,” COO Tony Bartel went on to tell analysts on the call. GameStop’s “working closely with Nintendo to ensure that we are best able to meet the holiday needs of our customers,” he said.

GameStop shares were trading more than 5% higher at $17.59 the afternoon of Nov. 22 after it reported Q3 results. Revenue grew 1.5% from a year ago, to $1.99 billion, while comparable store sales increased 1.9% (0.6% in the U.S. and 4.6% in other markets). Profit widened to $59.4 million (59 cents a share) from $50.8 million (49 cents a share).

New hardware sales increased 8.8%, led by demand for the Switch, while new software sales grew 5.4%. Pre-owned product sales, however, declined 2.4%. Digital sales increased 11.9%, while collectibles sales jumped 26.5% to $138.4 million.

Technology Brands sales – which include GameStop’s AT&T, Spring Mobile and Simply Mac retail stores — decreased 10.2% to $194.2 million, driven largely by the later-than-expected launch of Apple’s iPhone X, the retailer said in its earnings news release. GameStop was able to take reservations for the new smartphone Oct. 27 and “captured only two days of the X prelaunch in the quarter,” Lloyd said on the call.

GameStop expects that its hardware sales in Q4 “will be driven by” the Switch and Xbox One X, which has “been in high demand” since its Nov. 7 launch, he said. But Technology Brands “continues to face challenges” due to the late iPhone X launch, he said, adding: “Inventory shortages have impacted consumer traffic and demand” and it’s still “not clear when supply will free up.”

Since the Xbox One X launch, GameStop “sold out our entire market-leading allocation in two days and we are seeing the product sell as soon as it hits the shelves,” Bartel told analysts, adding: “We do believe that demand will outstrip supply on this console, and we will continue to be the best, most-informed place to purchase it.”

Since the physical launch of the iPhone X Nov. 3, that device has been “extremely supply constrained in all AT&T stores, more so than any prior iPhone launches and consistent with all carriers,” Bartel said. There’s “very little physical inventory today throughout the retail ecosystem, not just in our stores,” for the iPhone X, he went on to say, adding: “Every AT&T store has equal access to web in-store purchases through AT&T’s direct fulfil program and we are fully participating in that program. However, the lack of physical supply is limiting traffic flow. We believe that consumer awareness of the lack of inventory availability has shifted consumer shopping behavior to simply waiting for supply to purchase the device.”