GameStop tanks 11% after saying people are not upgrading smartphones

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

The added costs are largely from people holding onto smartphones longer and not upgrading to new models, GameStop said, which saw sales 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, making it the telecom giant’s largest retail partner.

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

AT&T also made changes 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 in 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 it 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 in the period, more than the 10.6 percent expected by analysts on Wall Street, according to FactSet.

Weak sales reported for Apple’s new lines of iPhones, especially its iPhoneX, have shown muted demand from consumers wanting to upgrade. GameStop is 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 that now has over 1,500 stores,” Lloyd said. “We’ll continue to grow that business.”

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

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