The quarter had its puts and takes, sales for the quarter were for the most part known from prior data points, but margins were weak given the heavy mix shift to consoles, freight costs, and costs associated with much higher ecommerce penetration. The business rate of change is improving. This quarter comps accelerated to 6.5% from -24.6% last Q. Then in February the company noted that comps are up 23% and revenue is up 5% despite lockdown closures and YY door closures. Console demand remains far above supply as management noted console events sell out in minutes. As console supply picks up, we think sales continue to ramp on top of easy 2020 compares for GME.
Management outlined some high level strategic initiatives which included:
- Investing in technology capabilities, including by in-sourcing talent and revamping systems, and evaluating next-generation assets;
- Building a superior customer experience;
- Expanding product offerings;
- Modernizing U.S. fulfillment operations to improve speed of delivery and service;
- Establishing a U.S.-based customer care operation, and;
- Leveraging the Company’s digital assets, including Game Informer and PowerUp Rewards, to increase market share within the growing online gaming
These were generally what we expected to hear, customer experience, speed, online capabilities are the bread and butter from Chewy. We also expected to hear about leveraging Game Informer and PowerUp rewards to build the ecosystem, though the company probably has bigger plans than most think for those. Evaluating next-gen assets sounds like the company expects to consider targeted M&A, now it has the currency to do so with its stock price. On expanded product offerings PC gaming is a clear category of focus as the CEO noted “growing our product offerings across PC gaming, computers, monitors, game tables, mobile gaming and gaming TVs, to name only a few”. We suspect there are some further plans that the company is keeping close to the vest for now.
Also coming on this event was the announcement of new execs, including a new COO Jenna Owens that joins from Amazon fulfillment operations having experience at Google and McKinsey as well. A new VP of ecommerce from Chewy/Amazon and a VP of supply chain from Zulily also were also announced. Those came after the announcement this morning that the Chief Customer Officer Frank Hamlin is leaving after a transition period. Ryan Cohen is putting his team in place and with the pedigrees of the talent being hired, it looks like they are coming on board to build something great. Gaming is large and growing industry with a highly engaged consumer; building the right platform and experience for the customer could have huge value potential.
As it relates to the GME stock, we’re not saying this is a great entry price, but fundamentals are improving and there is still a full catalyst calendar in 2021 as it relates to business improvement and the strategic transformation to be executed by Ryan Cohen. GME Remains on our Long Bias List.
