It Gets Worse, GameStop Investors
Nobody should be surprised by GameStop's ominous warning this morning.
The video game retailer is once again failing to live up to its earlier sales guidance. GameStop's total global sales during the seasonally potent holiday months of November and December fell 4.6% to $2.88 billion, bogged down by a 4.4% slide in comps.
Wasn't this supposed to be a great time for GameStop?
Activision Blizzard hit new initial sales records with November's release of Call of Duty: Black Ops II. For the first time in years, a new console generation hit the market when Nintendo introduced the Wii U.
Despite moving 320,000 Wii U units at price points of $300 and higher, hardware sales slipped 2.7%. Despite selling what had to be millions of Call of Duty: Black Ops II games, software sales fell by 5.1%.
It gets worse.
Sales of pre-owned games and gear tumbled 15.6%. GameStop has the gall to blame this on "limited inventory due to fewer new titles released throughout 2012," as if this isn't the beginning of the end of the GameStop model as we know it. Supply is soft because developers are bypassing physical distribution, reaching gamers directly through digital downloads. Demand is soft because the cash-strapped gamers who relied on hand-me-down diversions now rely on even cheaper digital games.
It gets worse.
Buying back used games and gear and reselling them at hefty markups has always been where GameStop's thickest margins come to party. Software follows after that, followed by hardware. Did you see the order of declines? The higher-margin categories were the hardest hit.
Oh, it gets worse.
GameStop either thinks its shareholders have short memories or the meandering retailer just doesn't have a clue about the future. Every time that it has opened its yap over the past year has been to hose down its comparable-store sales guidance for the fiscal year that ends this month.
Comps for 2012
1% to 5%
(5%) to 0%
(10%) to (2%)
(9%) to (6%)
(9%) to (7.5%)
It isn't pretty, but it's going to get worse.
GameStop now sees comps for this quarter slipping between 4% and 7%. Less than two months ago, the foolishly optimistic high end of that range was actually positive. Now, after slipping 4.4% through the meatiest two-thirds of the quarter, GameStop seems to be braced for a brutal January given the 5.5% midpoint for the entire quarter.
It gets worse.
I have accused GameStop in the past of taking on share buybacks so that profitability on a per-share basis holds up better than the actual decaying state of its business. It's at it again. The company repurchased 458,000 shares during the holiday period at an average price that is higher than where the stock is now. Is that any way to treat its shareholders? As it saw the holiday quarter crumble, shouldn't it have waited until after the bad news to eat its own cooking at lower price points?
It gets worse? It will. Just wait until GameStop speaks again.
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The article It Gets Worse, GameStop Investors originally appeared on Fool.com.Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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