The struggling GameStop continues to spin its wheels in a world drastically changed by the effects of the COVID-19 pandemic.
The Texas-based retailer of video games, accessories, and collectibles reported its second-quarter earnings this week with results that very much mirror its Q1 performance, in which the company experienced a 30% overall sales decline alongside a 519% increase in digital sales. In Q2, overall sales fell 26.7% while e-commerce grew 800%. Year-to-date sales through Aug. 1 totaled $1.96 billion compared to $2.83 billion during the same period last year.
“The second quarter saw strong progress toward our strategic initiatives, fueling an 800% increase in global E-commerce sales, a $133.7 million reduction in SG&A, and a significant improvement in our balance sheet with $735.1 million in cash at quarter-end and a 50% reduction in inventory, as compared to the second quarter last year,” says GameStop CEO George Sherman. “These achievements combined drove $181.9 million in free cash flow for the quarter. I am extremely proud of our team and their dedication to our mission, our strategy, and safely serving our customers despite operating in an unprecedented environment.”
In the earnings release and subsequent call with investors, Sherman emphasized the perennial turnaround efforts at the company as it continues to cut costs, reduce inventory levels, and close stores alongside already challenging pandemic-related conditions. The company has closed hundreds of stores across its international base this year as it continues its “de-densification” process. By the end of the year, it is expected that around 450 stores will close.
“We believe the actions we are taking to optimize the core operations of our business by increasing efficiencies and creating a frictionless digital ecosystem to serve our customers, wherever and whenever they choose to shop, are enabling us to navigate the COVID-19 environment while positioning us well for the launch of the next generation of consoles,” says Sherman. “While the ongoing pandemic continues to create a somewhat uncertain environment in the short term, we are very pleased by the consumer response at GameStop to the few recent video game product introductions and we believe we are ready, with expanded service and payment options, to handle the expected surge in demand and participate in a very significant way in the console launches later this year.”
Earlier in the week, Chewy founder Ryan Cohen purchased a 9% stake in GameStop. Prior to the pandemic, the retailer was working on new store concepts, bolstering its board of directors, and looking for new ways to reinvent itself as a “community hub.” While new console launches from Microsoft and Sony should give the retailer a sales boom, margins on hardware are traditionally very slim. Pair that with the fact that these are largely disc-free consoles fueled by downloadable software, and it’s not hard to see why some, such as IGN, are questioning how GameStop is still around.