GME stock is one of the biggest stock losers for this year with a fall of over 45%. GameStop Corp. (NYSE:GME) suffered as a result of gamers abandoning the company’s buy-sell-trade model that has been the foundation of its retail prowess.
Disappointing Q4 Results
GameStop is beginning the year in a tough situation with more pressure as it nears the end of its product cycle for Xbox One and PlayStation. The company has projected a double-digit decline in sales this year as it is expected that consumers will hold purchases until new gear for the devices come out.
CFO Rob Lloyd and his team gave investors context around that prediction for GME stock in a conference call with analysts. He explained that the company is remaining optimistic because a new CEO will soon be stepping into the leadership role. Below are some highlights from that call.
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In the third quarter, there were comparable store sales as a result of an increase in demand for collectibles, accessories, as well as digital products. New video game hardware sales remained steady, which contributed to the offsetting of the declines in the video game segment that shrunk 17%. FY flat sales were not a win for the company, whose new business model is skewed towards lower margin sales. With sales of pre-owned products declining, so did GameStop’s profitability, with gross margins dropping 27.9% of sales from 29.1% at the beginning of the year.
Things are Not that Bad
GME stock might have suffered due to these challenges, but the business is nonetheless far from collapsing. Despite closing about 122 of its units, most of its stores were cash flow positive last year. Most of the locations that were closed were short-term leases, and therefore GameStop still has adequate financial flexibility. The sale of the Spring Mobile business bolstered the company’s cash on hand from $770 million to around $1.6 billion. Even though the company does not have a clear path towards sales growth, it is still in a strong financial position.
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Featured image: DepositPhotos @ Vadymvdrobot
