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GameStop Unloads Inventory Ahead of New Game Console Launches

By Demitri Kalogeropoulos – Jun 10, 2020 at 10:53AM

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The video game retailer saw a demand lift as more people entertained themselves at home.

GameStop's (GME -1.18%) business took a serious hit from the COVID-19 pandemic closures but has emerged with a much stronger inventory position. The video game retailer said on Wednesday that revenue dove and losses mounted in the three-month period that ended in early May. Yet the chain is entering the next generation of gaming consoles with some encouraging momentum.

First-quarter revenue fell 30% at existing locations, GameStop revealed in an earnings report, and operating loss landed at $108 million compared to a gain of $18 million a year ago. Management noted several bright spots in the retailer's operating trends through the pandemic, though, including soaring digital sales and a sharp increase in demand since the second quarter started in early May. Executives said the e-commerce jump "reflects the loyalty of the GameStop customer and the confidence they place in us as their preferred place to shop."

A young man playing a console video game.

Image source: Getty Images.

GameStop suspects that the recent revenue jump might simply be a temporary boost tied to stay-at-home orders that have more people looking for home-based entertainment options. As a result, they declined to issue any specific guidance about the sales outlook.

But the company did manage to reduce inventory by 43% in recent months, which puts it in a flexible sales position just as Sony and Microsoft prepare to launch their new gaming consoles.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Microsoft. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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