GameStop will seek more exclusive collectibles and to be first-to-market with others this year after falling short of its target for collectibles sales, CEO Michael Mauler told analysts as the company reported results for the year ended Feb. 3.

For the year, GameStop’s net income narrowed to $34.7 million from $353.2 million, due largely to charges related to its technology brand business (AT&T Wireless, Simply Mac). Revenue rose 7.1% to $9.2 billion, as sales of new videogame hardware rose 28.3% to $1.79 billion.

Sales of collectibles were $636 million for the year, up 28.7% from a year earlier, but short of its earlier forecast of $650-$700 million.

In seeking to further bolster that business, GameStop will expand the number of stores offering a collectibles/videogames “hybrid” format, Mauler said. In addition to seeking exclusives, the company also will add more “high-end” licensed merchandise to its assortment, Mauler said.

It also will move to improve the gross margin for collectibles, which fell to 29.6% in Q4, versus 32.7% for the year, a downturn which Mauler said was caused by promotions needed to clear excess inventory. GameStop has installed new management for the collectibles business, which is being charged with improving “our product life-cycle management” and “optimizing” the timing of markdowns. It’s hoped the changes will let it maintain gross margins for the category in the 30-40% range.

“By refining these activities across various product types and intellectual property going forward, we believe we can prevent the buildup of slow-moving inventory,” Mauler said.

The new merchandise strategy also will include a larger mix of licensed apparel, Mauler said. GameStop recently hired an apparel buyer and has opened a handful of stores that add focus on female and children’s sizes.

Funko’s Pop! vinyl figures also are among GameStop’s more popular collectibles and the chain is working to secure Pop! exclusives and pre-sell some products, Mauler said. Videogames-related collectibles also have been a top-seller for GameStop particularly those related to Activision Blizzard’s “Overwatch” game and Epic Games’ “Fortnite,” he said.

The company’s move to convert some U.S. stores to the hybrid format is complicated by the fact that it operates primarily in strip centers. In has converted many of its stores in Europe and Australia to the hybrid format because they are in shopping malls. “If I go into a shopping mall store and change the window and the signage and put collectibles in the front, I have an immediate impact on the traffic in that mall that’s walking by that store,” Mauler said. “In a strip mall, it’s more of a destination store. So we’ve got to figure out a better way to communicate to these customers that we have a new value proposition” with collectibles.

Problems in its technology brands business (AT&T Wireless, Simply Mac) drove Game to a $105.9 million net loss in Q4 ended Feb. 3, compared to a $208.7 million profit the year before; it took a $359.8 million charge related to the technology chains. Total global sales jumped 15% to $3.5 billion on a 12.2% gain in same-store sales (up 14.2% U.S., and 8.3% elsewhere).

The Q4 sales increase was largely tied to a 44% rise in videogame hardware to $844 million, led by the Nintendo Switch console. Collectibles sales increased 22.8 % percent to $260.8 million.

Gross profit from collectibles improved to $77.1 million from $68.6 million. Those products accounted for 7.4% of Q4 sales, an increase from 7% a year earlier and were 6.9% of revenue ($636.2 million) for the year, versus 5.7% ($494.1 million) last year. Merchandise inventories were $1.36 billion, up from $1.12 billion a year ago.

Among the charges were $32.8 million in goodwill tied to GameStop’s tech brand division and $15 million for after-tax impairments linked to closing 75 tech-related stores (AT&T Wireless and Simply Mac). It also took a $2.7 million charge related to shutting a net of 131 videogames stores, ending the year with 3,827 in the U.S. and 1,969 in international markets.

Contact:

GameStop, Mike Loftus, Global Controller, mike.loftus@gamestop.com