Although GameStop posted a profit for the FY quarter ending July 30, weak sales of both software and hardware contributed to lower-than-expected revenues.
"As expected, the continued growth and increased profit contribution of our non-physical gaming businesses drove our second quarter results," said GameStop CEO Paul Raines. "Tech Brands sales grew more than 50%, omni-channel sales increased 16%, collectibles sales more than doubled and year-to-date, more than half of GameStop's operating earnings have come from non-physical gaming categories. These new businesses offset a tough quarter for video gaming and prove that our diversification strategy is succeeding."
GameStop declared an overall profit of $27.9 million, an increase from $25.3 million during the same period in 2015. However, its second quarter net sales dropped from $1.76 billion to $1.63 billion, short of analysts' predicted estimate of $1.72 billion.
Two issues likely contributed to those particular drops despite the company's overall profit. First, game launches during summer 2016 were comparatively weaker with launches during summer 2015. That means that the combined might of Doom, Overwatch, and Uncharted 4 couldn't stack up against earnings gleaned from the likes of Batman: Arkham Knight and Elder Scrolls Online.
Second, GameStop attributed its lower-than-expected second quarter results to announcements of PS4 Neo and Xbox Scorpio—the idea being that consumers who know better hardware is coming might wait instead of buying current models. Hardware sales dropped 33 percent to $216.4 million.
It's worth pointing out that Microsoft releases the Xbox One S at the beginning of August, so those sales wouldn't factor into GameStop's quarterly results. Microsoft recently announced "unprecedented demand" for Xbox One S, which might give GameStop a boost in hardware sales in its next quarterly report.
GameStop's loss in physical sales might be digital gaming's gain. Market research firm SuperData revealed that July saw high digital sales across all platforms, including premium and free-to-play MMOs.