The company's shares, which were at the heart of a Reddit-driven trading frenzy, jumped 9% in premarket trade on Monday after GameStop said Sherman would resign on or before July 31 and that it had started looking for a successor.
Reuters had earlier reported that GameStop's board was working with an executive headhunter on the CEO search and that its directors had spoken to potential candidates from gaming, e-commerce and technology sectors.
GameStop also said Sherman had refused to receive compensation for his role as a director, both before and after separation date, and had agreed to cancel his 2020 performance-vested restricted stock award.
Sherman has already forfeited more than 587,000 shares for failing to meet his performance targets, a regulatory filing showed last week.
Sherman's move to step down comes as Ryan Cohen, co-founder and former CEO of online pet food company Chewy Inc (CHWY.N), tightens his grip on GameStop after taking over as chairman earlier this month. Cohen's RC Ventures owns nearly 13% of GameStop, according to Refinitiv data.
GameStop's former CFO, Jim Bell, and former chief customer officer, Frank Hamlin, are among the senior executives who have left the company in recent weeks.
GameStop has been in the process of transforming itself into an e-commerce firm that can compete with big retailers such as Walmart Inc (WMT.N), as well as technology companies like Microsoft Corp (MSFT.O) and Sony Corp (6758.T).
Separately, Bloomberg reported that the man known as “Roaring Kitty” on social media, whose online posts helped spark January’s trading frenzy in GameStop, exercised call options on the stock to acquire 50,000 more shares at a strike price of $12.