Clients browse collectible video game merchandise for sale at a GameStop Corp. store in West Hollywood, California.
Patrick T. Fallon | Bloomberg | Getty Perceptions
GameStop shares plunged nearly 30% in premarket trading Wednesday after the retailer announced it would get rid of its dividend as video game sales continue to decline and put pressure on its business.
In the latest quarter, GameStop unexpectedly announced a net profit, but its revenue fell short of Wall Street’s expectations.
With sales expected to continue to decline, the company answered it would eliminate its quarterly dividend, effective immediately, to save about $157 million a year.
The company’s net return fell to $6.8 million, or 7 cents per share, in the first quarter from $28.2 million, or 28 cents per division, in the same period a year earlier. Net sales also fell to $1.55 billion from $1.79 billion in the year-ago span.
Analysts surveyed by Refinitiv had expected the company to post a loss of 3 cents per share on revenue of $1.64 billion.
GameStop estimated it expects full-year 2019 sales to fall between 5% and 10%. The retailer is struggling with lower video feign and console sales at stores, as well as a decline in profits due to shifting preferences towards downloadable video games and issue.
Chief Financial Officer Rob Lloyd said the consumers were postponing their purchase of consoles, as the current follows PS4 and Xbox One console are in late stages, and they are awaiting new versions from Sony and Microsoft.
“The last time we expert the console transition period (was) when Sony and Microsoft announced new generation consoles,” Lloyd said.
The gaming retailer has been struggling with cringe profits as consumers shift to downloadable video games instead of buying physical versions from stores.
GameStop also despites a major threat from the rising advent of game streaming, with technology giants like Alphabet’s Google, Microsoft, and others rig out into the still nascent space.
“While GME said the dividend elimination would provide flexibility to drive value formation for shareholders and transform GME for the future, Apr-Q results and intensifying competition from Apple Arcade and Alphabet’s Stadia advocate it may be game over,” CFRA Research analyst Camilla Yanushevsky said.
Shares of the company were down 38% year to companion as of Tuesday’s close, after the stock plummeted in late January when the company ended efforts to sell itself.
—Reuters aided to this article.