GameStop tanks 11% after saying people are not upgrading smartphones

GameStop stock dropped 11 percent in trading Friday after the company announced the idea expects impairment charges of between $350 million to $400 million at the end of the fourth quarter.

The added costs are largely coming from people holding onto smartphones longer as well as not upgrading to brand new products, GameStop said, which saw sales coming from its technology brands business drop 18.6 percent during the nine-week holiday period. The company owns more than 1,400 branded AT&T stores, creating the idea the telecom giant’s largest retail partner.

“Tech Brands continues to lag, with holiday underperformance largely tied to iPhone inventory constraints as well as the ongoing impact of AT&T’s compensation structure improvements,” Baird analysts wrote in a note Friday.

AT&T also made improvements to its compensation structure last year, further deepening the impairment charges, GameStop said. The company says the charges do not change its expected cash flows or liquidity within the fourth quarter.

GameStop did not immediately respond to CNBC’s request for comment.

Outside of the phone issue, the holidays were solid for the game retailer the idea appeared. Global sales rose 10.6 percent to $2.77 billion for the nine-week holiday period ending Dec. 30, the company said. Comparable same-store sales jumped 11.8 percent within the period, more than the 10.6 percent expected by analysts on Wall Street, according to FactSet.

Weak sales reported for Apple’s brand new lines of iPhones, especially its iPhoneX, have shown muted demand coming from consumers wanting to upgrade. GameStop is usually attempting to diversify its businesses with its technology brands division, to become less dependent on console game cycles, CFO Robert Lloyd told CNBC in April.

“We have a technology brands division of which today has over 1,500 stores,” Lloyd said. “We’ll continue to grow of which business.”

Shares of GameStop have fallen more than 28 percent within the past year, according to FactSet.

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