Why It Doesn’t Matter Who GameStop’s CEO Is

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Retailer GameStop Corp. (NYSE: GME) lost its chief executive officer. He had been in the job three months. Although the move caused consternation among investors, the CEO selection does not mean much. GameStop is in a downward spiral from which it cannot recover.

Michael K. Mauler did not enjoy a “first hundred days” honeymoon. He was gone yesterday and replaced on an interim basis by founder and Executive Chair Daniel A. DeMatteo. Presumably, DeMatteo’s pedigree is good enough to be the CEO, as he had been in the past. That begs the question of why Mauler was CEO at all. DeMatteo did say:

Given my tenure and familiarity with the company and our associates, it’s a natural step for me to assume this role and guide the business at this time while the board searches for a permanent CEO.

That makes the permanence, or lack or permanence, in the role even more confusing.

The answer to both DeMatteo’s reasons for keeping away from the CEO job and Mauler’s departure is that, as a brick-and-mortar retailer, GameStop cannot be fixed. Investors certainly believe that. GameStop shares are down 31% this year, 55% in the past two years and 68% in the past five. At $12.71 a share, the stock trades just above its 52-week low.

It would be hard to find a retailer with more exposure to the trouble with retail than GameStop. It operates over 7,200 stores across 14 countries.

GameStop’s fourth-quarter numbers were good, but its digital sales and guidance for 2018 were abysmal. In the final quarter of last year, revenue rose 15% to $3.5 billion. Same-store sales were up 12.2%. However, the company lost $106 million, compared to net income of $209 million last year. Digital sales were poor, up 7.3% to just $61.4 million. That is barely 2% of the total.

In terms of guidance:

Total Sales -2.0% to -6.0%

Comparable Store Sales (excludes Tech Brands stores) Flat to -5%

Income Tax Rate 26.0% to 27.0%

Adjusted (Non-GAAP) Earnings Per Share (diluted) $3.00 to $3.35*

Capital Expenditures $110.0 million to $120.0 million

The company has no articulated strategy to raise is digital sales rapidly.

GameStop looks very much like J.C. Penney and Barnes & Noble. Each company is in a different part of the retail business, but Wall Street has walked away from them because they have store sales that overwhelm online.

It doesn’t matter long-term who the GameStop CEO is. Almost no one believes the company can be repaired.