GameStop (GME) Q2 2022 earnings

SAN RAFAEL, CALIFORNIA – DECEMBER 08: Customers enter a GameStop store on December 08, 2021 in San Rafael, California. Video game retailer GameStop will release its third quarter results today after the closing bell. (Photo by Justin Sullivan/Getty Images)

Justin Sullivan | Getty Images News | Getty Images

GameStop said Wednesday that quarterly sales fell and losses widened as they burned cash and inventories swelled.

The video game retailer also revealed a new partnership with FTX crypto exchange.

Shares of the company rose about 10% after hours trading.

In the second fiscal quarter ended July 30, the company’s total sales fell to $1.14 billion from $1.18 billion a year ago. Its losses widened to $108.7 million, or 36 cents per share, from a loss of $61.6 million, or 21 cents, a year earlier.

GameStop’s results cannot be compared to estimates because too few analysts cover the company. It did not provide a financial outlook and has not provided one since the start of the pandemic.

The brick-and-mortar retailer is trying to adapt its business to a digital world. It has new leaders, including chairman of the board, Ryan Cohen, the founder of Soft and former activist investor for Bed bath and beyondand CEO Matt Furlong, a Amazon veteran. He also looked for new ways to earn money, including non-fungible tokens.

But the company struggled to turn a profit, leading it to cut costs and upset its leadership. Last month, he fired chief financial officer Mike Recupero and laid off employees in all departments. Chief Accountant Diana Jajeh stepped in as the company’s new CFO.

Furlong urged patience during an investor call Wednesday, saying GameStop needed to undergo a major transformation to keep pace with customers.

“Our path to becoming a more diverse, technology-centric company is one that obviously involves risk and will take time,” he said. “That said, we believe GameStop is a much stronger company than it was 18 months ago.”

GameStop’s new initiatives have come at a high price. It had $908.9 million in cash and cash equivalents at the end of the quarter, just over half of what it had at the end of the period a year ago.

Inventories soared to $734.8 million at the end of the quarter. That’s up from $596.4 million at the end of the second quarter a year earlier. The company said in a statement that it intentionally inflated its merchandise to meet customer demand and deal with supply chain challenges.

Furlong said on the call that the company needed to spend money to modernize its business after years of underinvestment. Among his moves, he has hired more than 600 talented people in areas such as blockchain while reducing shipping times, so customers get purchases in one to three days.

Change him

Now, he said, the company is focusing on new priorities: becoming profitable, launching exclusive products and investing in its stores. He said it also cut costs. Expenses were down 14% from the first quarter of the year, including some reductions resulting from layoffs.

“We will continue to focus on cost containment and continue to promote an ownership mentality throughout the organization,” he said.

As overall sales plummeted, he pointed to the growth of new businesses. GameStop launched an NFT marketplace in July, Which one is open to the public for beta testing. It allows users to connect their own digital asset wallets, including the recently launched GameStop wallet, so they can buy, sell, and trade NFTs for virtual goods.

Sales attributable to collectibles fell from $177.2 million in the second quarter of the previous year to $223.2 million in the most recent.

NFTs trade on FTX, the retailer’s new partner. “In addition to collaborating with FTX on new e-commerce and online marketing initiatives, GameStop will begin offering FTX gift cards at select stores,” GameStop said in a statement.

FTX was founded by a billionaire former Wall Street trader Sam Bankman-Fried30 years. It has become a lender of last resort for crypto businesses that have struggled as assets have fallen sharply since late last year.

The deal with FTX seems to play into GameStop’s status as a meme store.

The company’s shares have experienced strong fluctuations in value. Over the past year, the shares have gone from $19.39 to $63.92. The company’s shares are down about 36% so far this year, bringing the company’s value to $7.31 billion.

Even as the company shifts more towards e-commerce, Furlong said stores remain an important way to connect with customers and process orders online.

GameStop has rolled out a new compensation model for US store executives, he said. Each store manager can get $21,000 in stock, which vests over three years. They may also receive additional compensation through company stock on a quarterly basis, based on their performance.

He also increases the hourly wages of some store employees, but he does not share the specific salary.

Read GameStop’s earnings release here.

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