The video game retailer missed revenue estimates, but beat on earnings due to cost cuts.
GameStop (NYSE: GME) stock fell nearly 5% on Wednesday after the video game retailer posted mixed results in its fiscal first quarter.
The company generated $732 million in net sales, which was down 17% from the same quarter a year ago. It was also below the $754 million that analysts’ had anticipated.
Net income, however, was $45 million, up from a net loss of $32 million in Q1 of 2024. Earnings were 9 cents per share, up from an 11 cents per share loss a year ago.
Adjusted earnings were 17 cents per share, which beat the 12 cents per share loss a year ago. It was also better than the 4 cent per share adjusted EPS that analysts expected.
Earnings were boosted via the company’s cost containment and store optimization initiative.
GameStop closes hundreds of stores
GameStop was able to boost earnings by executing on its cost reduction plan, which resulted in 590 stores closing last year. While this took a bite out of revenue, GameStop was also able to significantly lower expenses as costs of sales dropped 25% to $480 million and selling, general, and administration expenses fell 23% to $228 million.
“During fiscal 2024, we initiated a comprehensive store portfolio optimization review which involves identifying stores for closure based on many factors, including an evaluation of current market conditions and individual store performance. This review, among other things, resulted in the closure of 590 stores in the United States in fiscal 2024,” officials said in the 10-Q filing.
The review is ongoing in 2025 and while specific stores have not yet been identified for closure, the company expects to close a “significant number of additional stores” this fiscal year.
Looking at its sales numbers, GameStop saw a 32% decline in hardware, accessories, and hardware bundles, which is essentially physical video games and accessories bought in the store. That represented 47% of its sales, down from 57% a year ago.
Digital video games and accessories, downloaded online, dropped 27% to $176 million, or 24% of sales, down from 27% of sales a year ago.
The biggest jump came in the sale of collectibles, toys, clothing and other gadgets, which rose 54% to $211 million, or 29% of sales, up from 15%.
Buying Bitcoin and exiting France and Canada
As part of its review of stores, GameStop decided to exit both the Canadian and French markets in the first quarter. For doing so, it incurred $35 million in impairment costs, but it should further reduce future expenses and revenue.
On May 4, it sold its Canadian subsidiary, Electronic Boutique Canada, which operated its stores there. The sale of operation in France are anticipated to close later this fiscal year.
GameStop also added Bitcoin as a strategic reserve asset and acquired 4,710 Bitcoins between May 3 and June 10. The purchase occurred after the quarter closed on May 3, so it did not affect the company’s financials in Q1.
“We have not set a maximum amount of Bitcoin we may accumulate. We may also sell any Bitcoin we may acquire,” officials said in the 10-Q.
It is hard to gauge where GameStop is heading, as it is clearly in a transition. The collectibles sales are a bright spot, as is its right-sizing of assets and stores. Investors should look for more growth from online or digital sales, as that’s where everything is headed.
The stock is down 8% YTD, and it is not cheap, trading at 91 times earnings. Investors should monitor it as it moves forward in its transition.