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GameStop’s losses deepen as it bolsters inventory ahead of holiday season

The Grapevine-based video game retailer’s net losses ballooned 550% year over year in the third quarter.

GameStop posted wider losses in the third quarter, driving its stock price down as the company looks toward a holiday shopping season marred by supply chain troubles and inflationary pressures.

Its year-over-year net losses grew from $18.8 million in the third quarter of 2020 to $105 million for the three-month period ending Oct. 30 this year.

Revenue for the quarter was $1.3 billion, up from $1 billion in third-quarter 2020.

Software sales declined slightly in the third quarter compared with the same period in 2020. Hardware and accessory sales for the quarter, which include sales of the latest generation of video game consoles, were up 160% over 2020.

“As indicated in the past, long-term revenue growth is the primary metric by which we believe stockholders should assess our execution,” CEO Matt Furlong said during the company’s earnings call.

The GameStop chief executive told analysts and shareholders that the company expects capital expenditures to increase as it invests more in tech and infrastructure.

“We believe our emphasis on the long term is positioning us to build what will ultimately become a much larger business relative to where we are in 2021,” Furlong said.

Analysts say GameStop’s profitability will heavily depend on sales of the latest generation of consoles as demand for physical video game discs declines. Those consoles from Microsoft and Sony, however, are still in short supply one year after their release.

GameStop front-loaded its investment in inventory to meet increased demand from customers and hopefully avoid supply chain interruptions over the holiday shopping season, the company said. It’s leaning on a $1.4 billion cash reserve as it invests in that inventory, Furlong said.

The company also disclosed Wednesday that it had invested in new offices in Seattle, Wash., and Boston, Mass., and said its new customer care center in Florida is operational.

The company said it spent the quarter focused on expanding its product offering and quickening delivery speeds. It announced that 60% of its U.S. stores now offer expanded PC gaming merchandise. GameStop has also struck new or expanded relationships with brands including Samsung, LG, Razer and Vizio that the company said contributed to an increase in sales over the quarter.

Furlong added Wednesday that GameStop is exploring “emerging opportunities” in nonfungible tokens and blockchain technology as well as “Web 3.0 gaming,” which refers to the evolution of in-game infrastructure in which players can own assets and potentially earn income while playing.

GameStop was a major beneficiary of the Reddit-fueled stock-buying frenzy that kicked off at the start of this year. Despite the enthusiasm of retail investors, the company has failed to post consistent profits over the last two years.

The company has been largely mum about its plan to make the company profitable again since Chewy.com co-founder Ryan Cohen took over as board chairman earlier this year. The young activist investor catapulted himself to the top of the Grapevine-based video game retailer with promises to make the company competitive with Amazon and other e-commerce giants.

GameStop stopped taking questions from analysts during its last several quarterly earnings calls and held a very brief shareholder meeting in Grapevine at which Cohen divulged little about his plans. Once again, the company did not host a Q&A session during its earnings call Wednesday.

It has expanded its distribution footprint, buying up Amazon-size fulfillment warehouse space to serve the Eastern and Western portions of its U.S. customer base.

GameStop has also poached executives who have experience at Amazon and other big ecommerce brands and put them in leadership roles at the video game retailer. One of those new hires, GameStop chief operating officer Jenna Owens, departed the company in October after just six months in the role. GameStop didn’t give a reason for Owens’ departure.

GameStop’s stock, one of the original “meme stocks,” has managed to hold investors’ interest nearly a year after the Reddit-fueled buying frenzy. Some of those shareholders are still organizing on social networks and have faith in a GameStop guided by Cohen.

The company’s stock price was down 5% in after-hours trading Wednesday evening after the release of its earnings.

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