GameStop (GME) sells videogames. It sells other stuff, but walk into one of its stores and look around and you still see walls of videogames.
The problem -- and it's a very big one -- is that anyone who owns a Microsoft (MSFT) Xbox or Sony (SNE) Playstion can download videogames right from their console. That leaves GameStop in the business of selling something that people can literally buy without leaving the house.
Despite that, the company has plans for a turnaround, or at least its CEO has a lot of words to say on the subject.
"The first year of our transformation was about starting to turn GameStop into a customer-obsessed technology company, one that has wider offerings, more competitive pricing, faster shipping, stronger customer service, and an easier shopping experience," said CEO Matt Furlong during the company's fourth-quarter earnings call.
What Is GameStop Actually Doing?
Furlong does have plans as to what a GameStop turnaround looks like. Most of them don't address the core idea that selling videogames has become a similar business to selling CDs. Sure, some people still want a disc and the packaging, but most will happily just download the game from their living room.
"We expanded our product catalog to seize more market share in areas such as PC gaming, personal electronics, and virtual reality; we invested in our fulfillment network by standing up new facilities on the East Coast in York, Pennsylvania, and on the West Coast in Reno, Nevada; we invested in our systems and tech stack after years of decay and neglect; we invested in U.S.-based customer service and established a new facility in South Florida," Furlong said,
It's possible GameStop could sell more PC products but it bumps up against Best Buy (BBY), which offers formidable competition. Virtual reality could be an area of growth, but the category barely exists right now, and again, a lot of big boxes operate in that space.
Furlong also has plans to make money in the digital space -- another very unproven area that may or may not turn out to be a major thing.
"We invested in a dedicated blockchain team and new capabilities to drive the development of initiatives such as our NFT marketplace, which we expect to launch by the end of the second quarter," he said. "We see significant long-term potential in the more than $40 billion market for NFTs. In keeping with our focus on the customer, we are going to continue taking steps to create new offerings and make targeted bets in blockchain gaming and cryptocurrency."
Like virtual reality, NFTs may be the next big thing or they may be a niche or even a fad,
Is GameStop's Turnaround Working?
Gamestop does have some things going for it. The company has a strong relationship with its customers and it grew its loyalty program by 31.8% year-over-year, taking its membership to nearly 6 million customers.
Sales were also up year-over-year, but Furlong mostly ignored the impact of the pandemic in the previous year (he did mention that Q4 topped pre-pandemic sales levels).
"For the full year, net sales were $6.01 billion, compared to $5.09 billion for fiscal year 2020. As indicated in the past, long-term sales growth is the primary metric by which we believe stockholders should assess our execution," he said.
GameStop's CEO may see sales growth as the key metric, but many investors will at least look at the fact that the company lost money.
"We reported a net loss of $147.5 million, or $1.94 per diluted share, compared to a net income of $80.3 million, or income per diluted share of $1.18 in the prior-year fourth quarter... We had a net loss of $381.3 million for fiscal year 2021, relative to $215.3 million for fiscal year 2020."
Companies in a turnaround often lose money. GameStop, because of the money it raised during its run as a pumped-up meme stock, does have a very strong balance sheet.
"We finished the year with cash and cash equivalents of over $1.27 billion, roughly $760 million higher than the company's cash position at the close of last year, Furlong said. "We are maintaining a sizable cash position, even while continuing to invest heavily in inventory to drive pragmatic growth and meet demand amid global supply chain issues."
The company's only debt is a $44.6 million low-interest, unsecured term loan associated with the French government's response to COVID-19.
