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GameStop (GME) Reports Holiday Sales, New Members on Board

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GameStop Corp.’s (GME - Free Report) latest move to bring aboard three new directors, per an agreement with RC Ventures LLC, has garnered positive investor sentiments. Shares of this gaming retailer rose as much as 12.7% on Jan 11, 2021. The stock’s bullish run on the bourses can also be attributed to impressive comparable sales numbers for the holiday season. These upsides have helped overshadow the otherwise dismal net holiday sales figure. Let’s look deeper into these developments.

Holiday Sales: A Bag of Mixed Beans

GameStop informed that its comparable store sales for the nine-week period ended Jan 2, 2021 increased 4.8% compared with last year’s nine-week period levels ended Jan 4, 2020. The holiday sales reflect an increase of 29.6 percentage points sequentially from third-quarter fiscal 2020 figure. The metric gained from growth in e-commerce sales as well as strong console demand. Comparable store sales growth was partially affected by decline in customer store traffic owing to rise in COVID-19 cases. Regionally, comparable sales in Australia/New Zealand increased nearly 31%, outperforming other operating regions of the company. The company’s operations were less impacted by the pandemic in the Australia/New Zealand region.

Net sales during the period amounted to $1.770 billion, down 3.1% year on year. Management highlighted that gains from strong console demand were offset by 11% decline in the company’s store base stemming from store closures undertaken as part of the company’s de-densification strategies. Mandated temporary store closures issued by local governments amid the pandemic were also a drag. Additionally, net sales were adversely impacted by limited supply of new gaming consoles as well as worldwide supply chain constrains that affected the company’s ability to distribute products across all sales channels.

E-commerce sales, which are part of the company’s comparable store sales, surged 309%. Markedly, e-commerce sales contributed approximately 34% to the company’s total sales. Online sales gained from strong demand for new consoles, continued strength for Nintendo Switch as well as the company’s expanded gaming product assortment. Impressively, the company’s total worldwide e-commerce sales reached more than $1.35 billion, on a year-to-date basis, exceeding the company’s earlier growth objective of $1 billion.

Going ahead, management expects to continue witnessing surging demand for its newly launched gaming consoles. This is likely to keep driving sales during 2021. Moreover, the company expects console availability from suppliers to improve later this year.

While management has not provided any guidance for fiscal 2020 due to uncertainties surrounding the pandemic, it continues to expect positive comparable store sales results and profitability in the fiscal fourth quarter.

Board Changes Stirs Excitement

Co-founder of Chewy — Ryan Cohen — began taking interest in GameStop since the middle of last year. The market has since then been excited regarding the stock, on expectations that Cohen’s expertise is likely to help turn around things for GameStop, which has long been struggling with soft hardware and software sales. RC Ventures, which is managed by Ryan Cohen, is currently one of the largest stakeholders of GameStop.

Per yesterday’s announcement, GameStop entered into a deal with RC Ventures for the immediate appointment of three new directors — Alan Attal, Jim Grube and Ryan Cohen. The newly-appointed directors will be eligible to stand for election at the company’s 2021 Annual Meeting, which is expected to take place in June. As a result of the new appointments, the company’s board strength expanded from 10 to 13. However, four of the company’s existing directors have informed that they do not intend to stand for re-election. As a result, the board strength will then be reduced to nine members, following the Annual Meeting.

The changes to the board are likely to help the company attain greater strength in e-commerce, digital products portfolio as well as online marketing. The skill sets added through the appointment of the new directors are likely to help the company optimize its core operations and strengthen footing in the gaming space. RC Ventures’ superior technology expertise and customer-oriented business approach is likely to support GameStop in its transformation journey.

Wrapping Up

We note that GameStop has remained committed toward boosting its omni-channel offerings alongside exploring opportunities in the digital gaming arena. In fact, the company’s partnership with Microsoft Corporation (MSFT - Free Report) for proving customer with enhanced digital solutions is worth appreciating. Apart from this, the company’s efforts to rationalize its store base as well as optimize cost and inventory levels have been on track. We expect such efforts to gain more traction with the restructuring of the company’s board. That said, we expect this Zacks Rank #3 (Hold) company to continue in investors’ good books. Markedly, shares of GameStop have surged 69% in the past three months compared with the industry’s decline of 4.4%.

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