GameStop (GME) is facing major headwinds amid a popular trend that is increasingly eating away at its profits.
The retailer just reported in its second-quarter earnings report for 2024 that sales took a major hit as more consumers are ditching physical games for ones that they can download digitally on video game consoles.
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In the report, GameStop revealed that its net sales during the quarter dipped by about 31%, compared to the same time period last year. Specifically, sales in hardware and accessories declined by about 24%, while software sales faced a bigger decrease, declining by roughly 47%.
GameStop overall earned a gross profit of $248 million during the quarter, which is about a 19% decrease from what it earned during the second quarter in 2023.
Since the earnings report’s release, GameStop’s stock price has declined by about 18%, now selling for about $20 per share.
In a 10-Q filing with the U.S. Securities and Exchange Commission, filed on Sept. 10, GameStop warned that amid declining sales, it is undergoing “a new phase of transformation,” which will involve mass store closures in the near future.
Customers enter a GameStop store on December 08, 2021 in San Rafael, California.
Justin Sullivan/Getty Images
“We have also initiated a comprehensive store portfolio optimization review, which involves identifying stores for closure based on many factors, including an evaluation of current market conditions and individual store performance,” said GameStop in the filing. “While this review is ongoing and a specific set of stores has not been identified for closure, we anticipate that it may result in the closure of a larger number of stores than we have closed in the past few years.”
GameStop has around 4,100 retail outlets worldwide, with around 2,915 of them based in the United States.
As of last month, the Grapevine, Texas-based group employed 16,000 people globally, around half of them full-time.
Related: GameStop CEO mulls harsh decision after earnings surprise
GameStop warns of a major change in consumer behavior
The grim report from GameStop comes after it revealed in a 10-K filing with the SEC in February that digital video game downloads have negatively impacted its business.
“Downloading of video game content to the current generation video game systems continues to grow and take an increasing percentage of new video game sales,” said GameStop in the 10-K filing. “If consumers’ preference for downloading video game content in lieu of physical software continues to increase, our business and financial performance may be adversely impacted.”
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GameStop also revealed in the 10-K filing that it had cut thousands of employees from its workforce in an effort to “achieve profitability.”
As GameStop struggles, the video game industry continues to boom financially in the U.S. According to a recent analysis from professional services firm Pwc, gaming in the U.S. is considered the “fastest-growing large sectors” in the entertainment and media industry. Pwc predicts that gaming revenue in the U.S. will reach $300 billion in 2028, which is more than double than what it generated in 2019.
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