GameStop Plummets After Struggling Chain Delivers a Grim Forecast

GameStop fell as much as 18 percent in early trading after predicting sales would tumble this year, providing more evidence that it's struggling to adapt to changes in the video-game industry.

The retail chain projected Tuesday that sales will drop 5 percent to 10 percent this year. Though GameStop is embarking on a cost-cutting drive as part of a turnaround plan, investors' confidence is shaken. The stock fell as low as $8.70 (roughly Rs. 600) in premarket trading, adding to a 20 percent decline so far this year. That would be the lowest level since 2005 in live trading.

GameStop, the largest independent retailer of video games, hasn't kept up with the fast-changing industry. While gamers once relied on brick-and-mortar stores to buy discs and consoles, they're increasingly making purchases online.

Last month, Apple and Google both announced they were launching online services for games. On Tuesday, Activision Blizzard said it would offer a battle-royale version of its popular Call of Duty game free online during the month of April.

The Grapevine, Texas-based company is trying to establish a presence in the growing world of esports, which features organised teams playing each other in leagues built around games like Overwatch. Last month, the company acquired naming rights to a new esports training facility being built on the grounds of the Dallas Cowboys headquarters.

Management also faces pressure from investors. The company reached an agreement this week with two activist firms that were seeking a revamp of the retailer's board. GameStop will add two board members in collaboration with Hestia Capital Partners and Permit Capital Enterprise Fund.

Cost cutting is key to GameStop's comeback plan. The company aims to achieve a $100 million (roughly Rs. 690 crores) improvement in operating profit this year. But for the first quarter, it expects to break even at best and could lose 5 cents a share.

Profit last quarter totaled $1.45 a share, short of the $1.58 average of analysts' estimates. At $3.1 billion, sales also failed to meet analysts' projections.

© The Washington Post 2019