This past week, GameStop announced their FY2019 and they Q4 earnings report. Top level impressions seem like a step in the right direction but GameStop has a long way to go. Debt was reduced $401 million, Inventory was reduced 31%, which last time we talked about GameStop there was the insiders that were saying over the holiday season they would have been able to sell much more if they had inventory but stock was constantly out. Im sure you are familiar with walking into a GameStop and seeing a dusty five year old brand new console on the shelf and i’m sure they would love to eliminate these wasted costs.

They also purchased back $199 million worth of shares. There are a few reasons GameStop would repurchase their shares and that would be if they thought their value had been too watered down and with the share price being near a 20 year all time low, there is a good possibility of that. Another reason is that the company is investing in itself. GameStop has been making a lot of changes lately and you have to believe in yourself if you are at the top of the company that you will be able to turn the ship around and become relevant again. The final reason a company would do this is to improve its financial ratios and basically if there are less shares of a company available on the market, but all the financials stay the same than earnings per share would go up. This is a very simple way to improve your financial ratios.

According to GameStop, they are entering 2020 with a “strengthened balance sheet and a refreshed board of directors which will further enhance the ability to drive the transformation plan” As we know from last week when we talked about Big Reggie joining the board at the end of April along with a few other new additions with large corporate experience. In Q4, GameStop was actually forecasting a loss but returned with slightly over 40 cents per share earnings. GameStop actually exited the year with $500 million in cash, which stings a little when you take into account all the human resources they restructured in 2019, including a majority of the Game Informer editorial staff. It seems like most of those people have found better opportunities in the industry including Ben Hanson and the computer loving cohorts at MinnMax.

Moving forward, Gamestop has four pillars that they are hoping will be the base for their success. Optimize Efficiency, Creating Hubs, Digital Ecosystem and Vendor/Partner Relationships.

As I mentioned in the intro GameStop does plan to close down a similar amount of stores in 2020 as they did in 2019 which was around 320 out of the global 5500 stores. This is one of the major key pillars of their future plans. In the words of GameStop “optimize the core business by improving efficiency and effectiveness across the organization by evaluating markets for continued store de-densification” In simpler terms, they are closing down stores that aren’t profitable or are too close to others. It was a bad business plan in the first place to have stores so close to each other that the cannibalization of revenue and cost would outweigh the sales benefits.

The digital ecosystem is an area that GameStop was very slow to enter. Although with the recent global shutdown, their implementation of an improved website that allows for such purchases as pay online and pick up in store couldn’t have come at a better time for the company. At the very least the company will still be able to generate some revenue during these times by offering the buy online and pickup option as well as the direct to home delivery, but their logistics realistically will never be able to match companies like Amazon. This goes without saying that no matter how good your logistics and supply chain get, it will never be able to compete with fully digital marketplaces that are offered directly from the console makers.

Keeping with the digital ecosystem, it was mentioned that they plan to enhance Game Informer with interactive digital media. Although that statement is very vague, its nice to hear that Andy McNamara and the rest of the GI crew that is still there are still part of the companies plans moving forward at least for the interim. Game Informer does a great job and it feels like for some reason they don’t quite get the respect they deserve.

As for their pillar of offering social and cultural hubs it would seem that this option just doesn’t make sense in a post social distancing world, at least for the indefinite future. The final pillar of their current and future plans involve transforming vendor and partner relationships for the future of gaming. In 2019, GameStop began testing digital revenue starting with key partners, which seems like a step in the right direction although they dont explain in further details exactly how this was accomplished. As for how they plan to accomplish this is 2020, GameStop will “continue to explore and advance new revenue model opportunities”

Given the current climate of the world its hard to see many of these trees bearing any fruit soon. “GameStop is closely monitoring the dynamic situation around covid19 and the potential impacts on business. Despite the increased demand since the outbreak began…given the uncertainty around the evolving situation, the company has suspended further guidance at this time” Despite finally seeing a little light at the end of the tunnel, it will be interesting to see how GameStop comes out on the other side of this after many of its customers have made the switch to fully digital or Amazon.