GameStop makes layoffs as video game retailer looks for profitability boost

By James Rogers

GameStop missed analysts' top- and bottom-line estimates in its fourth-quarter results this week

GameStop Corp. has been cutting jobs, the video game retailer and original meme stock said this week.

"As part of our strategic plan to achieve profitability, we have recently undertaken cost reduction measures and other initiatives to improve the efficiency of our operations, including initiatives to reduce headcount," GameStop (GME) said, in the 10-K filing that accompanied its fourth-quarter results.

"These initiatives could strain our existing resources, and we could experience operating difficulties in managing our business, including difficulties in hiring, managing and retaining employees," the company added. "If we do not adapt, we may experience erosion to our brand, the quality of our products and services may suffer and our operating results may be negatively impacted."

Related: GameStop shares slide 15% on top- and bottom-line misses for fourth quarter

GameStop did not say how many employees have been impacted by its headcount reduction, although the company has approximately 8,000 full-time salaried and hourly associates and between 13,000 and 18,000 part-time, hourly associates worldwide, according to its 10-K. Reuters reports that GameStop had 11,000 full-time salaried and hourly employees and between 14,000 and 27,000 part-time hourly employees in 2023.

GameStop has not yet responded to a request for comment on this report from MarketWatch.

"As part of our efforts to achieve sustained profitability, we continue to evaluate our portfolio of assets to validate their strategic and financial fit and to eliminate redundancies," the company said, in its 10-K filing, noting that GameStop exited its operations in Ireland, Switzerland, and Austria during fiscal 2023. As of Feb. 3, GameStop had a total of 4,169 retail stores, down from 4,413 on Jan. 28, 2023, the company said.

Related: GameStop's demise could come later this decade, analyst says

GameStop missed analysts' top- and bottom-line estimates in its fourth-quarter results this week. During its 2023 fiscal year, GameStop's net sales in the United States, Canada and Australia decreased by 16.2%, 15% and 11.2%, respectively, compared to the prior year. Net sales in Europe increased by 14.1%.

The retailer has been cutting its expenses. GameStop's Selling, General, and Administrative expenses decreased $357.1 million or 21.2%, in fiscal 2023 compared to the prior year, according to the 10-K filing.

Analysts have highlighted the challenges that GameStop faces. "GameStop is facing another series of layoffs attributed to decreased fourth-quarter revenue, low consumer spending, and competition from e-commerce companies," wrote Benchmark analyst Mike Hickey, in a note released Thursday.

Related: GameStop's stock jumps after billionaire investor Ryan Cohen named CEO

GameStop could meet its demise before the end of this decade, according to analyst firm Wedbush.

"Despite a quarter that featured an extra week and modestly positive industry trends, GameStop delivered a large sales decline as it continues to deal with a mix shift in software sales, declining hardware sales, fewer large console releases, and the growth of subscription services," Wedbush analyst Michael Pachter wrote in a note released Wednesday. "The silver lining is that cash burn and losses appear to be manageable going forward. With its current cash balance, GameStop can weather $100 million of annual losses for a decade or more."

The videogame retailer and original meme stock exited the quarter with cash and cash equivalents of $1.199 billion, compared with $1.21 billion at the end of the previous quarter.

However, Wedbush warned that should GameStop's revenues decline by $150 million to $200 million per year, it may have trouble trimming costs fast enough to stem its increasing losses. "If we're right, GameStop has a likely runway of no more than five years," Pachter said. "The demise of GameStop is outside the 12- month window we use for our price target, but we expect the company's demise at some point later this decade."

Read: Ryan Cohen becomes GameStop CEO and social media reacts: 'Changing the paradigm on Wall Street'

GameStop shares are down 0.8% in Thursday morning trading and have fallen 25.5% in 2024, compared with the S&P 500 index's SPX gain of 10.1%.

-James Rogers

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

03-28-24 1019ET

Copyright (c) 2024 Dow Jones & Company, Inc.