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The company's sales in the first quarter fell by 13% and GameStop announced Tuesday night to no longer pay a quarterly dividend to investors. GameStop (GME) stock fell 36% on Wednesday.
GameStop has experienced a slump of several years. The company's shares have lost two-thirds of its value over the last two years as customers change their gambling habits.
Downloads have exceeded CDs. Mobile gaming satisfies casual gamers. And streaming video games is a nascent business that could make its competitors serious Google (GOOGL), Amazon (AMZN) and Apple (AAPL). GameStop is a record store in the era of iTunes and Spotify.
GameStop added that customers were delaying their purchases on video game consoles because they were waiting for Sony and Microsoft (MSFT) to release new versions of PlayStation and Xbox. Both become a bit long in the tooth, and Sony (SNE) has already started discussing some features of its upcoming PlayStation. Nintendo Switch sales are also in free fall.
The company said it would use the money saved by halting its dividend to pay down debt and increase promotions and sales to increase customer traffic. But that's even more critical of profits. The company said its quarterly profits had dropped 63 percent in operations that had been in business for at least a year.
In March, GameStop hired George Sherman, a veteran of Target and Home Depot, to make it his new CEO, his fifth leader since November 2017. Sherman said he was confident that GameStop could win again, despite the forces acting against him.
"We believe we will transform the industry and shape GameStop's strategy for the future," he said in a statement on Tuesday.
He preached patience: he stated that GameStop was at the heart of a multi-year transformation effort. Sherman said the company can recover by reducing costs and focusing on the fundamentals of its business, which continue to be successful.
The problem is that there is not much that works for GameStop. The company has already closed hundreds of stores in recent years and GameStop's sales forecast for stores open at least a year ago would drop by another 5% to 10% in 2019.
Ironically, GameStop was once an innovator of streaming video games. He bought Spawn Labs in 2011 to create a kind of Netflix for video games. But it was too early: the technology was not ready yet and GameStop closed Spawn Labs in 2014.
The company has already considered selling, but it has found no buyer willing to reach an acceptable deal. In January, the company announced that it was no longer seeking to sell. Now GameStop is running out of options.
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