December 10, 2019 / 9:27 PM / 3 months ago

GameStop shares slump 20% as weak console demand prompts forecast cut

(Reuters) - GameStop Corp cut its full-year profit forecast on Tuesday as the video-game retailer struggles with customers delaying console purchases ahead of new launches and a shift to digital downloads of games, sending its shares plunging 20%.

FILE PHOTO: A GameStop store is photographed in Austin, TX, U.S., March 26, 2018. Picture taken on March 26, 2018. REUTERS/Mohammad Khursheed

The company, which gained popularity by selling video games for Atari consoles in the 1980s, now also faces the rise of game streaming services from technology giants such as Alphabet unit Google and Apple Inc.

“With console makers set to introduce new and innovative gaming consoles late next year, we anticipate this trend to continue until the fourth quarter of  2020,” Chief Executive Officer George Sherman said in a statement.

Newer versions of Sony Corp’s PlayStation and Microsoft Corp’s Xbox are expected to be unveiled next year.

In an effort to counter the weak trends, GameStop said it would wind down operations in Denmark, Finland, Norway and Sweden, while staying on course to achieve its $200 million annualized operating profit improvement goal by 2021.

The company, which earlier this year abandoned efforts to sell itself after failing to get a buyer on favorable terms, is looking at strengthening its website and targeting higher margin items such as gaming accessories.

GameStop’s credit and cost controls will be enough to weather the rough year ahead, Wedbush analyst Michael Pachter said.

In the third quarter ended Nov.2, GameStop reported a 23.2% drop in comparable store sales, bigger than estimates for a 13.8% decline, according to IBES data from Refinitiv.

New hardware sales tanked 45.8%, while software sales plunged 32.6% despite a growth in Nintendo Switch titles, GameStop said.

The company also reported a surprise loss of 49 cents per share against expectations for a profit of 11 cents.

GameStop was also hit hard by a decline in demand for pre-owned games, its most profitable segment.

The company now expects full-year earnings per share in the range of 10 cents to 20 cents, well short of its earlier forecast of $1.15 to $1.30.

Net sales fell about 26% to $1.44 billion, missing analysts’ average estimate of $1.62 billion.

Reporting by Amal S in Bengaluru; Editing by Shailesh Kuber and Sriraj Kalluvila

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