Recommendation to GameStop on reaching profitability and a Europe vs. Australia comparison
Hi All,
As a follow up to my cash burn post. My recommendation to GameStop management:
Significantly reduce European exposure. Reduce European store count by 15% in 2023 and 5% in 2024.
The Following information will support claims of the above recommendation:
GameStop has reduced 25% of European stores since 2019, or 304 stores closed. 85% of European store closures (257 stores) were conducted by prior management from 2019 to 2021.
Current management has closed 47 stores or 15% of the 304 total.
Specifically reduce France, Italy, and Ireland store count.
France and Ireland store count is oversaturated causing cannibalization of sales.
Reduce Ireland store count by 75%.
GameStop on average lost $41K per store in Europe in 2021.
Based on closing 20% of Europe locations, GameStop could save $7.5m/annually in operating costs while having little impact to revenue. Current mgmt. has proven they can drive an increase in sales while reducing store count in Europe (see Europe sales per store graph below).
Closing 20% of European stores also means employee reductions. Since mgmt. doesn’t provide a breakdown of employees by region, the only assumption we can make is that any reduction in European headcount will have an impact on reaching profitability.
Europe
2022 projected operating losses: between -$20m and -$25m
GameStop European 1H 2022 operating losses improved by 36% versus 1H 2021.
If you estimate a 35% improvement in the 1H of 2023 (using 2022 % chg. data) operating losses would equal -$18.4m.
Using a conservative 15% improvement in operating losses for 2H 2022 and 2023, total estimated operating losses would be -$12.3m full year 2023.
If you take the above recommendation of cutting 20% of European stores ($7.5m), with the assumption revenue doesn’t decline, 2023 estimated operating losses would be -$4.8m or almost break even.
Other supportive reasons to reduce European exposure:
Russia/Ukraine War
Complex distribution network and logistics systems between multiple countries
Increased government regulation compared to the US and Australia
Higher inflation across Europe compared to the US and Australia
European consumer discretionary income far less than US, meaning fewer video game purchases
Europe vs. Australia
Australia’s net sales have slightly declined YoY from 2020 to 2021. 1H 2021 compared to 1H 2022 net sales are flat.
Europe’s net sales have increased YoY from 2020 to 2021. 1H 2021 compared to 1H 2022 net sales have increased.
Australia’s operating gains have declined YoY from 2020 to 2021 but the region remains highly profitable for GameStop. 1H 2021 compared to 1H 2022 operating gains are flat.
Europe operating losses have improved YoY but the region remains highly unprofitable.
Europe has been unprofitable for the past three years.
Australia has been profitable for the past three years.
Australia’s average store sales have increased 25% since 2019 or $324K per store.
Europe’s average stores sales have increased 4% since 2019 or $36K per store.
On a per store basis, Australia generates $1.6m sales and $80K in profit annually.
On a per store basis, Europe generates $950K sales and -$41K in losses annually.
Further evidence (unsubstantiated) of store closures in Europe:
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
Disclaimer: this graph shows 2019, 2020, 2021 annual and 1H 2021 and 1H 2022 numbers
