Video game retailer GameStop's online sales skyrocketed during the second quarter, but its net losses still continue to grow as the company is forced to continue slashing inventory and keep most physical locations closed. The retailer's focus on cutting costs could make it harder for it to keep up with demand for next-generation consoles, which begin hitting shelves in just two months.
GameStop's net loss this quarter was $111.3 million, up from roughly $104 million last quarter. Its net sales from gaming products totaled $942 million, down nearly 27% annually.
While its net loss increased quarterly, GameStop was quick to note in its Sept. 9 earnings report that it has cut losses year-over-year -- during Q2 last year the retailer lost $415.3 million.
Online e-commerce sales across the globe rose 800% during the quarter, and GameStop said those sale statistics are included in the overall comparable sales measurements, which declined roughly 13% in Q2.
The company slashed inventory in half this quarter, leading to a roughly 30% reduction in expenses compared to the second quarter of last year, GameStop said. But the retailer's focus on cutting costs and inventory could make it harder for it to keep up with demand for next-generation consoles, which begin hitting shelves in just two months.
GameStop's stores nationwide remain largely closed -- it reduced its operating capacity by 13% while the overall store base declined 10% this quarter. The company did say that it transferred nearly 40% of sales from the closed stores to "neighboring locations and online," but still remains in the red. In March GameStop said it expects the number of permanent store closures to total at least 320. The company had nearly 5,700 outlets as of last December.
GameStop didn't immediately return TheWrap's request for comment regarding how many locations are now open for in-store use. It's worth noting that the company does offer non-gaming hardware or software, including merchandise and collectibles, which it's likely leaning on for its inventory reduction.
"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," GameStop chief executive George Sherman said in an earnings statement.
The retailer will also soon be competing with Xbox's All Access, which Xbox recently announced as a more affordable, subscription-based model for gamers who want to get their hands on the new Xbox Series S but can't afford the $300 upfront cost. All Access costs subscribers $25 for two years and includes access to the console if ordered directly through Microsoft.
"With Microsoft All Access and Sony looking to push a number of units through its own pre-order program, this will hit GameStop HARD. GameStop is 'coming soon' to All Access... it will join Best Buy (already operating), Target, Walmart, and (Microsoft's') own direct sales," Games analyst Mike Futter noted on Twitter Wednesday afternoon. Futter said that GameStop would essentially already be a dead company if it weren't for a last-minute addition to the Xbox All Access program.
"The competition here is going to make things VERY challenging for GameStop. If it hadn't gotten the go-ahead to participate in All Access, it would have been the last nail in the coffin," Futter said.
Futter said that contrary to Sherman's statement in the earnings report, gamers probably should be hesitant pre-ordering a next-generation console from GameStop instead of directly through the manufactures, Sony and Xbox (Xbox released pre-order information for its new consoles today).
"If you pre-order a next-gen console from GameStop instead of another, more stable retailer, you are gambling. Good luck," Futter said. "Good god. I would NOT preorder from GameStop," he replied in response to a gamer's question about where to buy the consoles this holiday.
Sherman said that he believes GameStop is still well-equipped to handle the demand for new hardware this holiday. "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," Sherman said.
GameStop's executive team and many lower-level employees continue to take pay cuts as nationwide retail struggles to return to normal operations. Beginning April 23 Sherman took a 50% pay reduction and GameStop's chief financial officer Jim Bell took a 30% cut. GameStop employees worldwide saw their pay slashed 10-30%.
I see GameStop had a very GameStop quarter. Good news... it's not as bad as last year. Bad news (in millions): pic.twitter.com/bLCDfHkC6A
— Mike Futter (@Futterish) September 9, 2020