With the release of the Sony PlayStation 4 and the Microsoft Xbox One expected in November, the next wave of video game consoles will emerge, and, hopefully, bring an upswing to the electronic game industry.
GameStop Corp, the world’s largest multichannel video game retailer, could sure use the boost. The video game retailer continues to wait for the introduction of the next generation of video game consoles, and with it a rise in sales.
GameStop reported a rough second quarter of fiscal 2013, ended August 3, with a 50 percent decrease in net income from $21 million in the second quarter of 2012 to $10.5 million in 2013.
“Comparable sales came in better than our guidance,” said J. Paul Raines, GameStop’s chief executive officer and director, according to the second fiscal quarter 2013 conference call’s transcript, “but still challenging as we close out the current console cycle.”
The decrease in net income is reflective of the cyclical nature of the video game market, the company said. The industry has not seen a release of a new generation of consoles since between 2005 and 2007, when the Sony PlayStation 3, the Microsoft Xbox 360 and the Nintendo Wii went on the market.
According to GameStop, new hardware sales decreased 19.4 percent. With the current generation now over six years old, consumers are holding off on purchasing game consoles and new console-specific video games until the new gaming systems are released during the holiday season.
GameStop reported a 10.7 percent decrease in revenue in the second quarter of 2013 from the same quarter a year ago, as sales fell from $1.55 billion to $1.38 billion.
The Texas based video game retailer traces its roots back to 1999 as Babbage’s, and, after a series of mergers, went public in 2002 as GameStop. Growth followed over the next several years, and GameStop’s reach now extends to over 6,650 company-owned stores in 15 countries worldwide and online. Though serving the public through the selling of new video game consoles, games and accessories, GameStop differentiates itself from companies like Best Buy, Wal-Mart and Amazon.com with its program that gives customers the opportunity to either trade in old games for select new items, or buy pre-owned products under deals like “Buy One, Get One Free.”
GameStop (GME), which currently trades at around $50 a share, has struggled over the past few years, along with the rest of the video game industry. According to an article by Trefis.com, a financial website, industry sales of consoles and PC games increased 21 percent in August, the first gain since November 2011.
“Reflecting on our recent history, we have navigated through nine consecutive quarters of negative comps as our industry has declined 38 percent since 2008,” said Raines in the transcript, referring to comparable store sales, an important measure of retail performance.
New hardware sales were not the only thing to suffer during the second quarter of fiscal 2013; pre-owned sales decreased 6 percent. GameStop, which holds 80 percent of the pre-owned video game retail market, attributes this drop in sales to the lack of traffic in its stores, as customers continue to anticipate the release of the PS4 and Xbox One.
Despite the small drop, pre-owned sales accounted for 38.2 percent of total sales in this quarter. This is a critical part of GameStop’s business, and a very profitable part, as well. The pre-owned category had a 47.4 percent gross profit margin, compared to 23 percent for new game software and just 10.5 percent for new game hardware.
“We are doing promos right now for pre-owned, such as the Xbox 360,” said Aaron, a GameStop employee, who could not speak on behalf of the company itself, commenting on the company’s in-store promotions, “but I expect we will see a spike in sales, probably in Q3 and Q4, after the release of the PS4 and Xbox One.”
As to its third fiscal quarter outlook, GameStop is positive and expects success as big name games are being released, and shortly thereafter the new console generation.
“We are pleased to be forecasting positive same-store sales ranging from plus 11 percent to plus 15 percent,” said Robert A. Lloyd, the company’s chief financial officer, according to the call transcript. “We are excited about the third quarter title lineup including Grand Theft Auto V, Battlefield 4, Assassin’s Creed Black Flag and others.”
The video game retailer expects continued growth in the digital and electronic game industry, and has made significant investments in its website, e-commerce and in-store processes to give customers easy access to digital content, and further encourage digital sales.
