SAN RAFAEL, CALIFORNIA – DECEMBER 8: Customers enter a GameStop Store on December 8, 2021 in San Rafael, California. Video games retailer GameStop will announce its third-quarter results after the close of trading today. (Photo by Justin Sullivan/Getty Images)
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GameStop said Wednesday that quarterly sales fell and losses widened as it burned cash and stockpiles swelled.
The video games retailer also announced a new partnership with crypto exchange FTX.
Shares of the company rose more than 6% in premarket trading on Thursday.
For the second fiscal quarter ended July 30, the company’s total revenue fell to $1.14 billion from $1.18 billion in the year-ago period. Losses widened to $108.7 million, or 36 cents a share, compared to a loss of $61.6 million, or 21 cents, a year earlier.
GameStop’s results cannot be compared to estimates due to too few analysts covering the company. There was no financial outlook and there has been none since the pandemic began.
The stationary retailer is trying to adapt its business to a digital world. It’s got new leadership, including CEO Ryan Cohen, founder of Chewy and former activist investor in Bed Bath & Beyond, and CEO Matt Furlong, an Amazon veteran. New ways of making money were also being sought, including non-fungible tokens.
But the company struggled to grow profits, causing it to cut costs and shake up leadership. Last month it fired Chief Financial Officer Mike Recupero and laid off employees across all departments. Accountant Diana Jajeh stepped in as the company’s new CFO.
Furlong urged patience on an investor call Wednesday, saying GameStop needs to undergo a significant transformation to keep up with customers.
“Obviously, our journey to becoming a more diversified and technology-centric company is one that involves risk and will take time,” he said. “With that in mind, we believe GameStop is a much stronger business than it was 18 months ago.”
GameStop’s new initiatives come at a high cost. At the end of the quarter, it had $908.9 million in cash and cash equivalents — a little over half of what it had at the end of the prior-year period.
Inventory increased to $734.8 million at the end of the quarter. This is an increase from $596.4 million at the end of the second quarter last year. The company said in a press release that it was intentionally stockpiling goods to keep up with customer demand and meet supply chain challenges.
Furlong said on the call that after years of underinvestment, the company had to spend money to modernize its business. Among other things, more than 600 employees with talents in areas like blockchain have been hired, while shipping times have been slashed, allowing customers to receive their purchases in one to three days.
Now, he said, the company is focusing on new priorities: becoming profitable, launching its own products, and investing in its businesses. He said it also lowers costs. Spending was down 14% from the first quarter of the year, including some cuts due to the layoffs.
“We will continue to have a strong focus on cost containment and continue to foster an ownership mentality across the business,” he said.
As overall sales fell, he pointed to the growth of new businesses. GameStop launched an NFT marketplace in July that is open to the public for beta testing. It allows users to connect their own digital asset wallets, including the recently launched GameStop wallet, so they can buy, sell and trade NFTs for virtual goods.
Revenue attributable to collectibles increased to $223.2 million in the most recent quarter from $177.2 million in the second quarter last year.
NFTs are traded on FTX, the retailer’s new partner. “In addition to working with FTX on new e-commerce and online marketing initiatives, GameStop will begin stocking FTX gift cards in select stores,” GameStop said in a press release.
FTX was founded by billionaire former Wall Street trader Sam Bankman-Fried (30). He has become the lender of last resort for struggling crypto firms as assets have plummeted since late last year.
The agreement with FTX seems to affect GameStop’s status as a meme stock.
The company’s shares have experienced sharp fluctuations in value. Over the past year, shares have surged from $19.39 to $63.92. The company’s shares are down about 36% so far this year, taking the company’s value to $7.31 billion.
Even as the company focuses more on e-commerce, Furlong said stores remain an important way to connect with customers and fulfill online orders.
GameStop has introduced a new compensation model for US store managers, he said. Each store manager can get $21,000 in stock valid for three years. They may also receive additional company stock awards on a quarterly basis based on performance.
It also increases hourly wages for some store employees, but he didn’t share the specific wage.
Read GameStop’s winning announcement here.