GameStop’s Post-Meme Transformation Takes Two Steps Forward

In the wake of GameStop’s dual C-suite and better than expected first-quarter earnings announcements Wednesday (June 9), a strange thing happened to the embroiled specialty retailer: nothing.

In as much as a 5 percent stock price move is typically big news for most public companies, in meme-stock land — where GameStop is still the reigning champ — single-digit trading gains and losses are seen as yawners.

So when the pride of Grapevine, Texas announced it was staffing its front office with not one but two eCommerce and tech leaders from Amazon, investors were clearly pleased yet took a much more muted wait-and-see approach until the new CEO and CFO actually join the firm.

For the record, incoming CEO Matt Furlong starts work on June 21, while his Amazon colleague and new CFO Mike Recupero will come on board July 12. Add in the fact that they will be getting to work in the relatively unscrutinized dog days of summer, as well as the reality that GameStop won’t report its next quarterly earnings results until early September, and a 90-day hold on emotional reaction has effectively been put in place.

Stay Tuned

In some ways this brief respite from the daily roller coaster meme ride is similar to the old “stay tuned, we’ll be right back”’ line in the TV business, that is, assuming the GameStop faithful (and haters) play along and hang on through the break.

Should the meme crowd get restless and decide that GameStop has become too boring compared to other avenues of speculation and choose to move their money elsewhere, that could ruin the honeymoon, or at least make it uncomfortable.

Likewise, if the legion of short-sellers who have been both scorched and humbled by GameStop’s 6,000 percent, seven-month move start to see an opening or any signs of weakness or waning interest, they could also swoop in and spoil the fun.

In fact, firms such as William Baird do not appear willing to “sit through the commercial break” to see what happens next in Wall Street’s favorite real life thriller, and have come out and said GameStop’s turnaround plan remains a mystery, and the stock is set for a 90 percent retreat.

What is known for sure, however, is that in only six months, Chewy.com billionaire turned video game retailer chairman Ryan Cohen has not only installed an entirely new board and management team at GameStop, but a whole new narrative as well.

Under Cohen’s short tenure at GameStop that began in January, the company has recruited a dream team of eCommerce experts from the likes of Amazon and Google to replace its entire suite of chiefs (CEO, COO, CFO, CTO, CMO), shored up the board with allies, and raised half a billion dollars in capital to enable the digital transformation of 4,800 stores and a website.

Whether or not this reinvention works remains to be seen, but investors would be hard pressed to dismiss this level of financial and professional reputational investment as window dressing.

The “De-Densified” Empire

Of course, the day-to-day requirements of running thousands of stores around the world with 12,000 employees will never let up and GameStop’s first-quarter results were a reflection of this, as well as the changes that have already been set in motion.

“Net sales for the quarter increased 25 percent to $1.3 billion,” outgoing CEO George Sherman told investors on the earnings call Wednesday afternoon. “Importantly, we achieved this growth with a roughly 12 percent reduction in the global store fleet due to our strategic de-densification efforts,” he added, meaning the company did more with less for the three months ended May 1.

“In the first quarter, we continued to focus on strategically de-densifying our global store fleet, closing a net total of 118 stores in the quarter and at quarter end, we operated 4,698 stores across the globe.”

The company also shrunk its losses to an adjusted $30 million last quarter, Sherman said, down from $150 million in red ink the year before, marking yet another tangible business milestone that has nothing to do with meme stocks.