GameStop’s (NYSE:GME) results showed great strength in all the wrong areas.
|From GameStop SEC filing||Gross Margins
(9 weeks, y/y)
|New video game hardware||10%||38%|
|New video game software||23%||7%|
|Pre-owned and value video game products||46%||-8%|
|Video game accessories||34%||34%|
GameStop’s highest growth came from new video game hardware, which offers the worst margins. This growth was driven by strong demand for the Nintendo (OTCPK:NTDOY, OTCPK:NTDOF) Switch and the launch of Microsoft’s (MSFT) Xbox One X. Growth in hardware is not a negative – sales are sales and it’s better for GameStop if the video game industry is strong. However, that growth also adds very little (if anything) to the bottom line. Margins are just too thin.
GameStop also showed strong growth in video game accessories and collectibles. These are both medium-margin segments. The turnaround in accessories was promising, as accessories sales had fallen 13% in the previous quarter. Collectibles results, despite a 19% gain, were disappointing. The past three quarters had grown 39%, 36%, and 27%. While 19% growth sounds nice, it’s a big drop from past growth rates, and may be an indication that collectibles sales are reaching a saturation level. That isn’t good news if GameStop plans to continue converting floor space to collectibles.
Digital sales growth is a bit deceiving. Holiday sales grew from $42.5 to $44.4 million (~4.5%) over last year. Last year’s results include results from Kongregate, however, which was sold in July 2017 for $55 million. Excluding Kongregate, digital sales grew at a robust 37%. The digital segment is still tiny at ~2% of revenue, but it offers very high margins.
Sales in pre-owned and value video game products were disappointing….READ FULL ARTICLE HERE
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