*DJ S&PGR Cuts GameStop To 'BB-' On Weakened Competitive Position
(MORE TO FOLLOW) Dow Jones Newswires
April 12, 2019 17:55 ET (21:55 GMT)
Press Release: S&PGR Cuts GameStop To 'BB-' On Weakened Competitive Position
The following is a press release from S&P Global Ratings:
-- GameStop Corp. recently reported weak operating performance as it
continues to face competitive challenges and structural shifts away from
physical video games toward digital delivery, leading to a decline in sales of
new physical games and software as well as preowned video games.
-- We believe the company's competitive position has deteriorated, a
trend we expect to continue. We lowered the issuer credit rating to 'BB-' from
'BB'.
-- We also lowered our issue-level rating on the company's first-lien
debt to 'BB+' from 'BBB-' and our issue-level rating on the unsecured notes to
'BB-' from 'BB'. All recovery ratings are unchanged.
-- The negative outlook reflects our expectation that intense competition
from online and traditional retailers will lead to further pressure on
GameStop's margin in the coming 12 months.
NEW YORK (S&P Global Ratings) April 12, 2019-S&P Global Ratings today took the
rating actions listed above. The downgrade reflects difficulties GameStop
faces from increased competitive threats and heavy dependence on the core
video game segment with last year's sale of mobile wireless and a slow
transition toward collectibles. We recognize GameStop's efforts to diversify
into higher-margin digital technology brands and collectibles. However, these
categories still account for a small portion of the company's overall business
(about 15% of total revenues), and have not been sufficient to offset the
inherent business volatility in its largest business--video game hardware and
software sales.
The negative outlook reflects our expectation that operating performance will
remain pressured over the next 12 months. Though we recognize the company's
efforts to increase its focus on video games and collectibles, we also believe
soft physical video game trends will continue and expect weaker credit metrics
with leverage in the low-3x area and funds from operations (FFO) to debt in
the low-20% area.
We could lower the rating if secular shifts and increased competition lead to
further erosion in GameStop's competitive position. This scenario could likely
occur if the company inadequately invests in its store base or is unable to
broaden its digital gaming penetration, with cash resources allocated toward
capital returns. In this case, it could see sustained declines in same-store
sales and adjusted EBITDA margins declining below 8%. If its competitive
position deteriorated and we expected debt to EBITDA to approach 4x or more
and FFO to debt to be below 20%, we could lower the ratings.
We could revise the outlook to stable if the company's strategic initiatives
succeed in reducing risks of persistent same-store sales declines and
stabilized EBITDA margins around 9%. If, for instance, we expected investments
in the digital gaming or collectible businesses to offset secular declines
associated with physical gaming, we could revise the outlook to stable. This
would likely result in prospects for leverage sustained at less than 4x and
FFO to debt in 20% area.
RELATED CRITERIA
-- Criteria | Corporates | General: Corporate Methodology: Ratios And
Adjustments, April 1, 2019
-- Criteria - Corporates - General: Recovery Rating Criteria For
Speculative-Grade Corporate Issuers, Dec. 7, 2016
-- Criteria | Corporates | General: Methodology And Assumptions:
Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
-- Criteria - Corporates - Industrials: Key Credit Factors For The Retail
And Restaurants Industry, Nov. 19, 2013
-- General Criteria: Country Risk Assessment Methodology And Assumptions,
Nov. 19, 2013
-- General Criteria: Group Rating Methodology, Nov. 19, 2013
-- General Criteria: Methodology: Industry Risk, Nov. 19, 2013
-- Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
-- General Criteria: Methodology: Management And Governance Credit
Factors For Corporate Entities And Insurers, Nov. 13, 2012
-- General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009
Certain terms used in this report, particularly certain adjectives used to
express our view on rating relevant factors, have specific meanings ascribed
to them in our criteria, and should therefore be read in conjunction with such
criteria. Please see Ratings Criteria at www.standardandpoors.com for further
information. Complete ratings information is available to subscribers of
RatingsDirect at www.capitaliq.com. All ratings affected by this rating action
can be found on S&P Global Ratings' public website at
www.standardandpoors.com. Use the Ratings search box located in the left
column.
Primary Credit Analyst: Mathew Christy, CFA, New York (1) 212-438-7786;
mathew.christy@spglobal.com
Secondary Contact: Andy G Sookram, New York (1) 212-438-5024;
andy.sookram@spglobal.com
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(END) Dow Jones Newswires
April 12, 2019 17:55 ET (21:55 GMT)
*DJ S&P Cuts GameStop to 'BB-' on Weakened Competitive Position
(MORE TO FOLLOW) Dow Jones Newswires (212-416-2800)
April 12, 2019 17:55 ET (21:55 GMT)
*DJ S&P: We Believe Company's Competitive Position Has Deteriorated, a Trend We Expect to Continue >GME
(MORE TO FOLLOW) Dow Jones Newswires (212-416-2800)
April 12, 2019 17:55 ET (21:55 GMT)
*DJ S&P: We Lowered the Issuer Credit Rating to 'BB-' From 'BB' >GME
(MORE TO FOLLOW) Dow Jones Newswires (212-416-2800)
April 12, 2019 17:56 ET (21:56 GMT)
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