M+E Connections

Despite the ongoing global coronavirus crisis, the new Microsoft Xbox Series X and Sony PlayStation 5 video game consoles are still expected to ship during the 2020 holiday season, according to executives at retailer GameStop.

“We will continue to work with the console makers as the launch approaches, but as of now, we have no indication of any impact on the product launch or delivery date, which is expected in time for holiday 2020,” GameStop CEO George Sherman said March 26 during an earnings call for the retailer’s fourth quarter (ended Feb. 1).

GameStop swung to a $21 million (32 cents a share) profit from a loss of $187.7 million ($1.84 a share) in Q4 a year earlier, despite revenue falling to $2.2 billion from $3.1 billion and comparable store sales dropping 26.1%. The retailer continued to struggle largely from a continued decline in demand for the current-generation Microsoft and Sony consoles. At least part of the profit was attributable to the sale of non-core business units.

The “cyclicality of the console business” is expected to “continue to impact sales through the first three quarters” of GameStop’s fiscal 2020 “until the launch of Gen 9 consoles” from Sony and Microsoft, according to CFO Jim Bell.

For the fourth quarter, GameStop had “anticipated sales would be tough given the dynamics in the industry, but as we mentioned earlier this year, the accelerated decline in hardware and software after the Black Friday period was more than we had originally anticipated,” Bell said.

Hardware and accessories sales tumbled 32.5%, “reflecting anticipated next-generation console launches in 2020, as well as being up against significant accessory sales related to” the popular online Epic Games title Fortnite in the fourth quarter of 2018, he noted.

However, “we continue to see the Nintendo Switch platform resonate with customers and this was a key positive both within the merchandising presentation in our stores and as an offset to lower console sales,” he said.

Software sales fell 27.8% in Q4. “Given the early announcement of new console launches, the number of title launches for this final holiday period on the current console was much weaker than the prior years with more than nine major titles moving out of 2019 and into later fiscal 2020,” Bell pointed out. “Two bright spots in the quarter, however,” were Activision’s game Call of Duty: Modern Warfare and Nintendo Switch titles, he said.

GameStop is “intensely focused on continuing to make the necessary changes to further strengthen our overall financial architecture including all key profit and expense levers that will result in an organization that is efficient, streamlined, and poised to capitalize on a significant profit flow-through improvement as we experience expected robust sales increases in late 2020 led by the generation 9 hardware and software slate,” he told analysts.

As of the week of the earnings call, GameStop had closed most of its global locations, “with the notable exception of Australia and New Zealand,” as a result of COVID-19, he said. “Where we continue to operate in the U.S., our stores are closed to customer traffic, but still fulfilling increased demand for our products through our contactless curbside delivery process we call delivery at the door,” he noted.