Financial Performance

GameStop Shares Drop 29% After Dividend Halt

The video game retailer will save about $157 million a year by eliminating the dividend as it struggles with shrinking profits.
Matthew HellerJune 5, 2019
GameStop Shares Drop 29% After Dividend Halt

GameStop shares plunged in extended trading Tuesday after the struggling video game retailer reported another tough quarter and halted its dividend.

GameStop’s revenue fell 13.3% in the first quarter to $1.5 billion and comparable store sales dropped 10.3% amid slowing demand for video games. Analysts had expected revenue of $1.64 million.

Net income dropped to $6.8 million, or 7 cents per share, in the quarter, from $28.2 million, or 28 cents per share, a year earlier.

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Chief Financial Officer Rob Lloyd said GameStop was caught in a “console transition period” as consumers postponed purchases in anticipation of the release of new versions from Sony and Microsoft.

But the company also announced it had terminated its quarterly dividend, a move that will save about $157 million a year, besides helping to reduce its nearly $500 million debt burden.

In the extended session, Game Stop shares tumbled 29% to $5.50. It was the second time this year that the stock has fallen more than 25% in a day.

“While GME said the dividend elimination would provide flexibility to drive value creation for shareholders and transform GME for the future, [the first-quarter] results and intensifying competition from Apple Arcade and Alphabet’s Stadia suggest it may be game over,” CFRA Research analyst Camilla Yanushevsky said.

As Reuters reports, GameStop “has been struggling with shrinking profits as consumers shift to downloadable videogames instead of buying physical versions from stores” and also “faces a major threat from the rising advent of game streaming, with technology giants like Alphabet Inc’s Google, Microsoft and others getting into the still nascent space.”

In the first quarter, the company had weaker results in almost every category, with new hardware sales down 35%, new software sales down 4.3%, and preowned game sales down 20.3%.

GameStop’s new CEO, George Sherman, said he has been “working closely with the team to improve our operational and financial performance, addressing the challenges that have impacted our results, and execute both deliberately and with urgency.”

But Wccftech said turning around the company “will not be an easy task with their core businesses depleting annually.”