Gamestop – 2018 Financial Report

And it’s not what I would call good news. Not that anyone expected good news. I certainly wasn’t. Press release here.

Q4 18 revenue (13 weeks) was a loss of 187.7M USD vs a 105.9 loss for Q4 17. Bit rough, but again, expected. The yearly though, shows a pretty rough state of affairs.

The 2017 fiscal year, ending Feb 2018 (53 weeks) had a net income of 34.7M while year ending Feb 2019 shows a net income loss of 673M. I was curious as to the large change. Net Sales dropped by 261.8, or around 3%, but it looks like most expenses also dropped.

The single largest line item, change, not present in the previous year, is a 970.7M Goodwill impairment. I’m still not super clear on what that is, but it seems to be the difference between the paid or previous value of an asset vs it’s newly assessed value.

“The difference between the book value and fair market value is recorded as a loss due to goodwill impairment in the company’s income statement.” – Investopedia

It is not immediate clear to me exactly which of their assets is currently considered “impaired,” as it’s not stated in this press release. I’m assuming they would have posted a net income otherwise? At least, that’s my impression after running the math for myself.

The part I found of particular interest were the individual categories of sales and how they’ve changed. The single largest source of net sales are in new software, which is actually down a little from last year. This is followed by new hardware, also down a little, and pre-owned which is down hard, some 13ish% from last year. Meanwhile, accessory sales,  at number four are up, as are collectables, while the remaining “digital” and “other” are pretty flat.

Makes sense in a way. Consoles are at a stable point in the hardware cycle, and presumably most of the people who would want one probably already possess one. On top of that, this category has the worst profit margin, 8.5% 1,767.8 sales to only 150 gross.

The large drop in pre-owned is interesting, though. As a consumer there’s a certain logic to it. The main reason why I personally used to go to Gamestop was to look through the pre-owned section and see if there was anything interesting that was reasonably priced. The last few times I’ve gone though, I’ve experienced several problems.

One is that the only console I now possess is a Switch. Nintendo games hold value so hard that pre-owned may as well be new. Two, I’ve found that I can find comparable deals online with more reliable availability that isn’t connected to specific retail locations. Heck, I know a used book store with better stock and deals than Gamestop, for all consoles, old and new. Having said that, despite being pretty low on the net sales category, pre-owned sales are a massive category of gross profit, pulling a 43.4% margin. So they aren’t taking in a ton of money, but the profit margin is leaps and bounds better than new hardware(8.5) and software(20.8), only outdone by digital sales with an insane 88.5% profit margin. Most everything else is around 30%.

Accessory sales being on the upswing makes sense too. I believe they mention specifically controller and headset sales. I’m operating under the assumption that the Switch is helping drive that, but honestly I’m so disconnected from the console market these days that I could easily be wrong.

I guess collectibles is a “good for them” category. I personally found the amount of kitsch to be bothersome. It felt like there were increasingly fewer games and more… stuff. Seems to be working for them though, so I guess it appeals to their target customer.

[You know, on further reflection and considering the people I’ve known that would use Gamestop, I’d say customer experience had a lot to do with it. The individual I have in mind pre-ordered from Walmart instead of Gamestop only one time, and that’s because it took him nearly an hour to make a single game pickup that would have been a five to ten minute in and out deal at Gamestop. I would say my experience in regards to call-ahead and pre-orders was similarly smooth.]

They didn’t really provide much guidance going forward, primary due to a new CEO taking over in a couple of weeks. I’m personally curious to see how they do going forward. At the very least it provides an interesting view into the nuts and bolts of the retail games industry and where the money is.

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