GameStop (GME) Q2 2022 revenue

GameStop said Wednesday that quarterly sales fell and losses widened as it burned through cash and inventory swelled.

The video game retailer also revealed a new partnership with crypto exchange FTX.

Shares in the company rose more than 6% in pre-market trading on Thursday.

In the fiscal second quarter ended July 30, the company’s total sales fell to $1.14 billion from $1.18 billion in the same period a year earlier. Losses widened to $108.7 million, or 36 cents a share, compared with a loss of $61.6 million, or 21 cents, a year earlier.

GameStop’s results are not comparable to estimates because too few analysts cover the company. It provided no economic outlook and has not provided any since the start of the pandemic.

The brick-and-mortar retailer is trying to adapt its business to a digital world. It has new leadership, including chairman Ryan Cohen, the founder of Chewy and former activist investor for Bed Bath & Beyond, and CEO Matt Furlong, an Amazon veteran. It has also looked at new ways to make money, including non-fungible tokens.

But the company has struggled to turn a profit, which has led to cost-cutting and a management shake-up. Last month, it fired CFO Mike Recupero and laid off employees across departments. Accounting manager Diana Jajeh stepped in as the company’s new CFO.

Urging patience on an investor call Wednesday, Furlong said GameStop needs to go through a significant transformation to keep up with customers.

“Our path to becoming a more diversified and technology-centric business is one that obviously carries risk and will take time,” he said. “That being said, we believe GameStop is a much stronger business than it was 18 months ago.”

GameStop’s new initiative has come at a high cost. It had $908.9 million in cash and cash equivalents at the end of the quarter — a little more than half of what it had at the end of the year-ago period.

The inventory increased to $734.8 million at the end of the quarter. That’s up from $596.4 million at the end of last year’s second quarter. The company said in a release that it was intentionally investing in commodities to keep up with customer demand and address supply chain challenges.

Furlong said on the call that the company needed to spend money to modernize the business after years of underinvestment. Among the moves, it hired more than 600 people with talent in areas such as blockchain, while reducing delivery times, allowing customers to receive purchases within one to three days.

Now, he said, the company is focused on new priorities: becoming profitable, launching proprietary products and investing in its stores. He said it also reduces costs. Costs were down 14% from the first quarter of the year, including some reductions from layoffs.

“We’re going to keep a strong focus on cost containment and continue to promote an ownership mentality across the organization,” he said.

As overall sales fell, he pointed to the growth of newer businesses. GameStop launched an NFT marketplace in July, which is open to the public for beta testing. It allows users to connect their own digital assets, including the recently launched GameStop wallet, to buy, sell and trade NFTs for virtual goods.

Sales related to collectibles rose from $177.2 million in last year’s second quarter to $223.2 million in the latest.

NFTs trade on FTX, the dealer’s new partner. “In addition to partnering with FTX on new e-commerce and online marketing initiatives, GameStop will begin carrying FTX gift cards in select stores,” GameStop said in a release.

FTX was founded by billionaire former Wall Street trader Sam Bankman-Fried, 30. He has become a lender of last resort for crypto firms that have struggled as assets have fallen sharply since late last year.

The deal with FTX appears to play into GameStop’s status as a meme stock.

The company’s shares have experienced strong fluctuations in value. Over the past year, shares have fluctuated from $19.39 to $63.92. The company’s stock is down about 36% so far this year, bringing the company’s value to $7.31 billion.

Even as the company focuses more on e-commerce, Furlong said stores are still an important way to connect with customers and fulfill online orders.

GameStop rolled out a new compensation model for U.S. store managers, he said. Each store manager can get $21,000 in stock, which can be used over three years. They can also get extra pay through company shares on a quarterly basis, depending on their performance.

It also increases the hourly wages for some store employees, but he did not share the specific wages.

Read GameStop’s earnings report here.