The PS4 and Xbox One are clearly approaching the end of their main lifecycles, and that's doing serious damage to GameStop's bottom line. The video game store's Q1 profits fell to $6.8 million, just a quarter of what they were a year earlier, based on a steep 35 percent drop in new hardware sales. And that's after accounting for the Nintendo Switch's strong performance. While GameStop didn't explain the decline, gamers knew the next PlayStation and Xbox "Scarlett" were on the horizon -- there wasn't much point to buying a current-gen system. The much gentler dip in software sales (4.3 percent) reinforced this.
The retailer didn't expect the situation to improve any time soon, either. It also unveiled a string of cost-cutting measures to stay afloat, including scrapping the company's share dividend (potentially saving $157 million per year) and merging ThinkGeek's online collecting sales with the main GameStop website. Just days earlier, GameStop had reshuffled its leadership with new Chief Customer Officer and Chief Merchandising Officer positions as well as a new financial chief.
Hardware sales are bound to tick upward when the new systems arrive, most likely in late 2020. However, the plummeting profits also reflect GameStop's fragility in an era when game downloads are replacing physical copies. Console sales are much more important these days, and that's a problem when there's a hardware transition underway.