GameStop’s (NYSE:GME) results showed great strength in all the wrong areas.

From GameStop SEC filing Gross Margins
(T12M)
Holiday growth
(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%
Digital 86% 4%
Technology Brands 70% -19%
Collectibles 34% 19%
Other 33% -18%

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

 

 

We want you to join our community

Benefits of signing up for a FREE membership now:

-No more costly delays in waiting for material

-Dozens of publications per week, including news coverage, earnings commentary, analysis, politics, and more

-Access to special guest contributions, including from WSJ, CNBC, and prolific SA authors

Ability to comment on articles

Access to our weekly newsletter

-Publish your own opinion/analysis

CLICK HERE: All you have to do is register, and join the community today

Thank you for your readership, and for your loyalty.

Regards,

Quad7Capital

——

Not interested? We understand. However, you will miss out on the insights we have provided over the years, that helped drive us to the NUMBER ONE AUTHOR on long ideas on the Seeking Alpha Platform,

 

Please Like And Share Our Content!