Despite a substantial $177 million earnings loss in Q1'20 and an 80% reduction in its deferred tax assets, GameStop isn't down for the count yet. It might owe hundreds of millions, but the company is still alive and kicking for the time being.
Beleaguered retailer GameStop currently owes $417.2 million in total debts. Luckily its cash on hand outweighs its debts. GameStop has $570 million in cash right now, but even a portion of that--$135 million--was financed from credit. So GameStop is still at risk but it's not immediately going under.
To held buy it some time, GameStop issued a new debt note exchange offer. The company will pay exchange a 1:1 promise to all noteholders to pay them the exact value of their notes when the notes are due. But the catch is the notes won't mature until 2023, meaning GameStop won't have to pay everything back until that period.
The current notes will mature in March 2021.
"The New Notes are being offered to provide the Company additional financial flexibility by replacing and extending the maturity of the Existing Notes validly tendered in the Exchange Offer until 2023," reads the press release.
If GameStop can't get the noteholders to agree to the exchange, it'll have to pay back its debts in March 2021. Luckily the company expects to have $575 million - $625 million in cash by Q2'20. They won't have to necessarily liquidate assets, but if the notes mature and they pay back the full debt, GameStop will have to get more funding.
For reference, GameStop spent over $700 million in expenses in Q1'20.
So how will GameStop pay all those lenders back?
A newly devised four-part strategy was put into place in 2019, and since then the company has made a big push towards digital. In Q1'20, e-commerce sales were up 519%, and shot up to 1400% in June,
The launch of the PlayStation 5 and Xbox Series X next-gen consoles in 2020 are also expected to help catalyze revenues, sales, and total earnings throughout the year.
GameStop's four-part plan includes:
- Optimize the Core: Optimize the core business by improving efficiency and effectiveness across the organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing the global store base.
- Become the Social / Cultural Hub for Gaming: Create the social and cultural hub of gaming across the GameStop platform by testing and improving existing core assets including the store experience, knowledgeable associates and the PowerUp Rewards loyalty program.
- Build Digital Platform: Build compelling digital capabilities, including the recent relaunch of GameStop.com, to reach customers more broadly across the omni-channel platform and give them the full spectrum of content and access to products they desire.
- Transform Vendor Partnerships: Transform our vendor and partner relationships to unlock additional high-margin revenue streams and optimize the lifetime value of every customer.
GameStop also says it will rigidly monitor and cut back its inventory to help reduce wastes and inefficiencies.