*DJ S&PGR Downgrades GameStop Rating To 'B+'; Outlook Negative
(MORE TO FOLLOW) Dow Jones Newswires
December 19, 2019 15:38 ET (20:38 GMT)
Press Release: S&PGR Downgrades GameStop Rating To 'B+'; Outlook Negative
The following is a press release from S&P Global Ratings:
-- GameStop Corp. recently reported weak operating performance as it
continues to face risks from the elongation in the launch of new consoles,
increasing competitive challenges, and long-term structural technological
shifts.
-- We lowered the ratings on the company, including the issuer credit
rating, to 'B+' from 'BB-', on both near-term performance volatility and
long-term competitive uncertainties.
-- The negative outlook reflects our expectation that intense competition
from online and traditional retailers, economic uncertainty, and the
lengthening of the console cycle could result in further deterioration for
operating prospects.
NEW YORK (S&P Global Ratings) Dec. 19, 2019--S&P Global Ratings today took the
rating actions listed above. The downgrade reflects our expectation for
heightened performance risks over the next 12 months because of unique
industry dynamics associated with game console development and a slowing
economic backdrop. It also reflects our belief that competition and
technological changes in the video game industry will continue to evolve over
time, leading to potentially diminished long-term growth prospects for the
company. GameStop is making efforts to pivot the business to other categories,
control expenses, and right-size its large, internationally diversified
footprint but we believe there are significant execution risks associated with
this strategy. Risks include potentially large capital spending to migrate the
business away from core video game retailing.
The negative outlook reflects our expectation that intense competition from
online and traditional retailers and the elongated console cycle will pressure
results over the coming 12 months.
We could lower the rating if secular shifts and increased competition lead to
further erosion in GameStop's competitive position. This scenario could occur
if the company inadequately invests in its store base or is unable to broaden
its digital gaming penetration. Under such a scenario, operating performance
and free operating cash flow (FOCF) generation would remain volatile and
leverage would likely track to the 3x area. We could also lower the rating if
GameStop is not comfortably positioned to address its unsecured notes maturing
March 2021 with cash or through a refinancing.
We could revise the outlook to stable if the company's strategic initiatives
succeed in reducing operating performance risks, which includes diversifying
sales away from physical video game products while improving long-term growth
prospects. Under such a scenario, GameStop would generate significant FOCF
flow while adequately investing in digital gaming, collectibles, and other
products while improving customer engagement.
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Certain terms used in this report, particularly certain adjectives used to
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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
December 19, 2019 15:38 ET (20:38 GMT)
