GameStop Corp.’s shares plunged during premarket trading Wednesday a day after the company reported a 13.3 percent drop in first-quarter revenue and said it would eliminate its dividend amid slumping video game sales.
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The gaming retailer said it will halt its quarterly dividend effective immediately in hopes of giving it more financial flexibility by saving about $157 million in cash. The company’s board of directors said the move will also help further reduce its outstanding debt of about $436 million.
“With our operating profit improvement initiative well underway, we are focused on executing on the significant opportunities available to us to transform GameStop for the future,” GameStop’s executive chairman Dan DeMatteo said. “The board is confident that redirecting capital towards debt reduction and transformation initiatives will create additional shareholder value over the long-term.”
GameStop’s net income fell to $6.8 million, or 7 cents per diluted share, from $28.2 million, or 28 cents per diluted share, in the same quarter a year ago. Global sales decreased 13.3 percent to $1.5 billion, compared to $1.79 billion a year earlier. The first-quarter revenue report also caused the company's stock to tumble on Tuesday.
Analysts had projected higher revenue for the gaming retailer in the first quarter, but a decline in video game and console sales at stores has taken a toll on the company. New hardware sales fell about 35 percent and new software sales declined 4.3 percent compared to last year. Rob Lloyd, GameStop’s CFO, said customers were waiting on new console releases from Sony and Microsoft instead of buying the current model PS4 and Xbox One console.
“The last time we experienced the console transition period (was) when Sony and Microsoft announced new generation consoles,” Lloyd said, according to CNBC.
The gaming world has changed in recent years with new technology. Avid gamers are now downloading video games and participating in game streaming. Major tech companies, including Google and Microsoft, are also taking advantage of the industry.
The Associated Press contributed to this report.