PS5 And Xbox Series X Reveals Have Negatively Impacted GameStop's Business, Retailer Says

The Nintendo Switch, however, is selling well and might be indicative of a future turnaround.

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The holiday season is historically the most important sales period of the year for retailers, but unfortunately for GameStop, things did not go so well. The Grapevine, Texas-based retailer announced its holiday earnings today, and they dropped significantly.

For the nine-week period ended January 4, 2020, GameStop generated revenue of $1.83 billion, which is down 27.5 percent compared to the same period last year. Store sales fell 24.7 percent, which is a dramatic result given sales increased 1.5 percent during the holiday period last year.

GameStop said the downturn in sales this holiday was due in part to the "overall trends impacting the video game industry," adding that the drop-off was also impacted by the "accelerated decline" in new console and game sales, "particularly in the month of December."

PlayStation 4 and Xbox One console sales have been dropping for months now at GameStop and other retailers, with the more recently released Nintendo Switch the only major home console experiencing growth in 2019. It's expected that PS4 and Xbox One sales have fallen recently, as the systems are at the tail end of their lifecycles, having been in the market since 2013. Additionally, people may be holding off on buying a new PlayStation or Xbox right now because next-generation consoles from each company are due out this Holiday.

"We continued to see growth in the Nintendo Switch platform, which supports our view that our sales will strengthen as new consoles and innovative technology are introduced," management said.

As for game sales declining, GameStop--which trades mainly in physical media--is likely suffering at the hands of increasing digital game sales. Multiple major publishers have announced that the percentage of new games sold digitally are increasing, at times to record highs. For example, Borderlands 3 sold 70 percent of its launch copies digitally, while Call of Duty: Modern Warfare also set digital sales records.

GameStop CEO George Sherman said the retailer anticipated a "challenging sales environment" for this holiday season. "Our customers continue to delay purchases ahead of anticipated console launches in late 2020," he said.

Due to the poor sales results, GameStop is downgrading its fiscal 2019 earnings guidance. The company believes it has the "right long-term action plans in place" to help improve profitability for the company year, though no specific strategies were announced.

One way GameStop is cutting costs is by closing stores. As part of GameStop's ambitious "GameStop Reboot" initiative, the company is closing 180-200 "underperforming" stores by February 2020, with more store closures to potentially come later.

Around 55 stores are already confirmed to be closing in the United States, while more than two-dozen EB Games locations are closing or have already shut in Australia. (GameStop owns EB Games). GameStop also cut staff from its Game Informer magazine recently.

GameStop announced its holiday sales report and confirmed the downgraded projections at the end of the day on Monday, so it will be interesting to see how anaylysts and investors respond when the stock market opens on Tuesday. GameStop is currently trading at around $5.43 per share, which is close to an all-time low for the company.

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