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Switch and Pokémon boost GameStop Q1 sales

Company beats expectations, although profits do slip

The success of Nintendo Switch has boosted GameStop's Q1 performance.

The retail giant scored $2.05bn in global sales for the quarter ending April 29th, which is a 2.3% rise in 'same store sales' over the period before. This is primarily driven by Nintendo Switch. The new console helped drive a hardware sales increase of 24.6% over the same period a year before, the firm says.

"We presell most of our Switch hardware before it hits our warehouse through our web in-Store process, which allows customers to ship the product to their home while still using trade currency to fund their purchase," said COO Tony Bartel in the financial call transcribed by Seeking Alpha. "This means that the product is selling out even before we receive it. We're attaching nearly 6 pieces of software and accessories to each Switch unit sold. This attachment rate is nearly double that of the rest of the industry and it also means that we're 50% more profitable than the rest of the industry for each Switch unit that we sell."

It wasn't just Switch, with Pokémon driving a 39.1% jump in merchandise sales. $114.5m was generated from the sales of toys and other collectibles, which has been a big focus for the retailer following its ThinkGeek acquisition.

Another key growth area was digital, although that grew only slightly - 3% to $44.1m. Tech sales rose 21.5% to $201.4m, thanks to the firm's AT&T stores.

Despite the revenue growth, first quarter profits actually fell by around 11% to $59m. The drop in sales was driven by a fall in AAA releases, which resulted in an 8.2% drop in software sales. Pre-owned sales also fell by 6.2% compared with the same period a year before.

Moving forwards, GameStop remains cautious. The firm says that its success may be impacted by the delay to Red Dead Redemption 2, and will be dependent on the availability of Nintendo Switch stock.

"Hardware in Q2 will be driven by the allocation of and demand for Switch," said CFO Robert Lloyd. "As of today, we do not have complete insight into the total number of units we can expect in Q2. New software will face a difficult comparison to Uncharted, Doom and Overwatch from last May. Collectibles sales are expected to grow 35% to 40% from the $90 million in sales in last year's second quarter.

"For the full year, while our Q1 results exceeded our plan, Red Dead Redemption 2 moving out of our fiscal year and not having complete visibility to allocations or demand for Switch for the entire year keep us at our initial guidance range."

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