GameStop (GME) 4 Jun 192019 Q1 Earnings call transcript

Thank you. And welcome to GameStop's First Quarter Fiscal 2019 Earnings Conference Call. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.

Any such statements should be considered in conjunction with the cautionary statements and safe harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. GameStop assumes no obligation to update any of these forward-looking statements or information. as information be financial earnings found earlier as other the discussed release and section today, can Investor call in well reconciliation regarding Company's measures non-GAAP on issued of A the the website. in the Company's

now would the turn Chief to the call Sherman. Officer, George like to Company's I Now, over Executive

Thank today quarter first on afternoon earnings and you thank everyone, Good our you. for us joining call.

of will our is Rob quarter Lloyd, COO give on an comments. me who overview my first my be today’s call following joining earnings Joining to call with first April. today and results outgoing great since CFO It’s in GameStop you

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Rob the like of Thank now turn recap to I'd you. quarter. call the Lloyd over to for

Good George. afternoon, Thanks, everyone.

Before George extensive an to I'd to we first the challenges have and quarter the like as search, the results, I entire to board discuss tackle welcome ahead. leading team. glad moment the team is a After on transformation take George our GameStop to

we recognizes around The simultaneously our team exciting on and of doing setting the for team and in amount the pivotal for our GameStop as of video embark game that industry, is a vision the aligned needed is time is This work leadership transformation. protect future. everything the to very position the required The while preserve strategic company. the

a to we have in their future, initiatives for drive help can determine believe number initiatives our viability long-term. to improve performance over previewed, we we're As test of place that and growth beginning the that the George

progress organization-wide initiatives to designed George the increased the operational our in is is underway. plan, embarking steady and GameStop April, operations of Reboot we and possible. the efficiency. an on in improve This and costs associates and to initiative reduce have partners well just introduced increase you as for future where on, our to now profit outside efficiencies identifying deliver initiative One opportunities improvement known are elaborated Since made

while store comps our decreased to sales first decreased In XX.X%, company Coming Total performance sales comp the we're U.S., results XX.X% XX.X%. on decreased a challenging with given comping year, into international that our cycle, video sales XX.X%. pre-owned anticipated end the under comp comparison for the in current slate Moving we down console title category. stronger the line released in of nearing top and the game a XXXX ongoing quarter.

fruition we of sales to pre-owned with in All original to quarter, a software breakeven were our sales sales were in of first down diluted we declining observed per share. down per quarter hardware deliver which challenging and trends expectations share, the diluted $X.XX X.X% came of than three earnings XX.X%. pleased the of much better these loss to XX%, our expectations business the Despite $X.XX

in than expected earnings sales driver of management due better The primary delivering behind is to face the decline. expense the

declining was function in platforms. Again, in the for Our game of tail-end video the console for An sales double than is offset hardware overall the the fiscal decreased hardware sales new console business switch quarter. more XX% being across decline industry sales hardware quarter. increase the a of at declines remaining cycle by in categories by largely this the as evidenced digit

While the in to reported XXXX. console transition and Microsoft a very new the The significant, consoles. decrease is declines in we hardware Sony last announced when experienced similar generation it is time early period

date of Xbox the are PSX and Microsoft. We’re and in the stages Sony and current late official One awaiting launch generation cycle, from announcements

console are purchases launched. innovative in potential delaying persist to we customers new current new for until pipeline, Given the anticipation technology trends expect with the the releases

title decreased this comping sales data adoption. the and given year war and the quarter, new digital launched year software X.X% increasing weaker launches for a last strong New

XX demand Mortal While increased we overall Gone declined, the Days software market sales as and drove overall from share industry. outpaced Kombat

we saw X platforms. Additionally, X for the increase share quarter both and in a Xbox PlayStation software

decreased Our for pre-owned XX.X% the business quarter.

of the physical products. see new software, continue the games and reflecting the popularity in declines to We software offered digitally increasing demand for pre-owned various

switch continued in and for and the quarter we sales sales While experienced controllers. increased significant Accessory quarter. pre-owned overall the during growth pre-owned hardware did strong in segment decreased software growth hardware third with our software, X.X%

growth created their difficult the a QX Battle in significant first part While the comparison the XXXX. driven in quarter of XXXX genre a accessories continue headsets Royale business, for XX% by of to comprise

in decreased Far quarter, year, last Cry strength download by Battleground receipts for sold this the driven the content the with Digital a downloadable X weaker given other primarily X.X% decrease pass for full and season titles DLC associated PlayerUnknown game year. of and digitally and the new

strong Our XX.X% business of it business continue that be to will an going delivered part the our increased support forward. quarter. results belief collectibles for important Sales to our

in would for leverage and XX.X%. collectibles to for business team. growth omni-channel increased sales has points the streamlined increased XX% basis GameStop collectibles category the quarter. the thinkgeek.com, platform excluding Thinkgeek.com margins to have However, our been XX% the Gross

overall to gross gears margins. Shifting

pre-owned points decreased XX.X% the from and for increased and new margins towards away incrementally of gross shifted our mix gross segments. Our software digital. hardware, sales XX low to as and basis collectibles rates margin category, margin margin categories software overall Hardware both a higher

more games However, offset was this than across and digital by accessories, collectibles.

Moving SG&A. to on

quarter. million the X.X% executive were management, by year’s million primarily to included expense quarter, the compared compared related compared The prior to reduced $XXX.X which ago, management improved compensation quarter, a year including a year lower charges severance was expense last changes. first to $XXX.X costs driven decrease For SG&A to

though to more there’s we down as structure, our on costs referenced flex in While were cost able earlier. of shows be sales, variable SG&A the work face George done to deleveraging

we $XX.X from From prior earnings $XX.X the million of perspective, operations an operating This in to earnings compares reported continuing in the quarter. year operation million quarter.

rate quarter. Our XX% for tax the was effective

to bottom our line. Moving

million, Mobile quarter prior from $XX.X continuing This $X.X reported compares to related to continuing sale income of including First from million. million income million discontinued and included of loss and Spring discontinued quarter $X.X operations. the prior the of $X.X operations net net was $X.X income a from and million from million of operations $XX.X operations

estate our fleet real store remains a perspective, From very healthy.

and current collectible ended flexibility stores international which XX our X,XXX collectible XX with with life remaining is U.S. video stores approximately We average tremendous stores. manage for stores gives internationally, lease mentioned, game footprint. in game two quarter video and George to the years, and our our As X,XXX us domestic the

the down the $XXX.X retirements sheet, balance This working $XX and billion reported quarter the in of dividends at $XXX with reflects XXXX of launch. million fiscal unsecured our end million ended paid quarter Moving needs, million in we from typical first to XXXX. $X.X capital the the cash, notes our and

implemented lease long of accounting also asset $XXX during offsetting the new use an current million and a resulting the term of in We standards right quarter, with liability.

a capital immediately. From effective the perspective, to allocation quarterly the elected discontinue board has dividends

George sheet and business any on new the We in to term. streams. the revenue not foresee do and strengthening can in acquisitions investing near said, balance concepts explore we As focus the

progress outstanding additional Specifically, our toward as incremental down unsecured it relates made we've notes. debt paying the to reductions, XXXX

Since towards current balance $XX we've paid at the stands The now first million. million this quarter, beginning down obligation. the approximately of $XXX

However, first the the sheet this that will the after not quarter on for appear of activity balance pay-down since quarter much ended. occurred

As of have we approach today, of strategy CFO. and incoming input repurchases we're requirements broader the capital announcing not on clarity capital revisit once from we'll our allocation on share question long-term our our the any and to

on $XXX authorization. have remaining the We million current

Shifting to outlook our for fiscal XXXX.

as CapEx, we're in more we GameStop and our much With to contemplate concepts fiscal business. $XXX the to beneficial test XXXX we the to impact fiscal remain XXXX For range program $XXX operating reboot assessing XXXX benefits in profit of and new the level to years. expect the million and expect investments million in underway, subsequent

EPS 'XX. As and a various the providing for specific we're fiscal leadership reminder, considered being given the not changes guidance initiatives

will parts we impact around the However, following providing business are XXXX of our various results. context that the

as to new for respect PlayStation. we the hardware, and end of the get Xbox current console closer to cycle With

which decline anticipation on in acquiring in continue the to quarter our of generation some wait customers was to to next sidelines choose of reflected consoles, first demand results. expect We as the

new new a given XXXX, outlook from continue and the have both and expect recent quarter title tough stronger trends given XXXX in software. first hardware to we our business, For pre-owned In XXXX. lineup for software, our comp we

improve to are for see we're we We traction, planning the to But until strategies this current business. trends working persist. on

our business, build the digital double digits and continue established collectibles strong and we our we to product to In merchandising. expect that refine on XXXX foundation as we've offerings see to in growing business continue

back share. the excluding our income continuing was will diluted a historical We XXXX Mobile, business. in be QX half that we seasonality Spring Looking anticipate operations, again, from adjusted weighted, profits loss $X.XX heavily QX note of beyond QX, generated and the of that with per consistent fiscal XXXX

reiterating to calculated continuing XX%. down sales We store are the X% sales operations comparable year our decline from in range down full of and to guidance, using both

operator that, hand to the open I'd call With have over like questions. call before we the George to your for the

Rob. you, Thank

wanted of this all you've at for to Given time career. thank your you last the to your is earnings today company call done take for I that XX GameStop, year

several often You the oversaw market. integration the and and roll-up led game the of of successful integration key very acquisitions the video U.S. post-merger

community, helping the experienced. associates the over a over wish You've hand GameStop I next of speed the well and for two I organization in all investment your been the business, the me changes as the steady last you up the as to years has thank years, with you thousands well significant chapter. particularly to in getting

You'll Thank be appreciate but your we work know that dedication you. years. over hard and missed the

George. Thank you,

With operator, like for I that, to the open questions. call up

with Thank you [Operator Wissink today Stephanie we’ll Instructions]. question from our first And Jefferies.

is This Steph taking Ashley Thanks for on our for Wissink. question.

with higher business bit about key collectibles looks it little drivers accelerated sequentially the gross there? and key brands the Can you talk a margins. So

Could the please? question you repeat

collectibles So, talk brands? looks you accelerated regarding had key about you've higher business, drivers margins. the Can and key gross and the it like

talk Yes, about can that. sure. We

couple strong of certainly one of look I collectibles POPS we have at business, them. is think categories. our if you

So, the traffic new looking into collectible figurines stores are gets in high for releases. regular demand and

T-shirt strong quite our addition, within as remains In do collectibles. the business statues

with hear Stochel we'll Next Ray Research. Edge Consumer from

And all thanks when thank we that And Thanks. years. over everyone upcoming to today. changes First, longer years? off proposition marketing in months you for program? some the pre-owned One the some help can value taking to you to do discuss think how around pre-owned can value over tests We've the see recent Rob your about changes be seen any so question for market would we loyalty starting and And that. to my then you do the think term the proposition? the much

place with you're probably referring that a have Rewards. in to pilots PowerUp think couple we I

continuous Rewards a the more of as of of provide part to flow program. PowerUp looking are We coupons

to this makes addition around basis, whereas monthly spend benefit get centered So, you $XX gives of on the games, stores where past simple a was -- in one really return worth pre-owned you actual money a investment generally to on coupons. in and it

in that's that that one. right rolled, is we’ve now initial test. the we're it’s something that So piloting on It something liking not results

to pre-owned the we On consider think really gaming guaranteed disappointed pre-owned and look gaming, on mind, being I we're a at the and pre-owned as clear customer. it compelling two, comes part pricing that relative and the I'd topic games business just what Immediately, the we on and to there bit. say of with is results the of the of to some value and of proposition ensuring is value games new level results

Sebastian W. with We'll Colin now hear from Baird. Robert

It’s actually on if questions, Two for could. I Colin. Ben

changes the I re-acceleration around there And to through, loyalty maybe First time cash program given XXXX. expectations on any clarity growth being, then in term soon? flow until reflective outlook appear here to given eliminate declines or dividend, on be any are guess you for I that of the on in there, early the rationale that the the for free you're to more near could tweaks debt there doesn't or just that anymore clarity walk anytime Was coming reaccelerate it the the any just due business, there there guess? ongoing pre-owned making that the

Yes, the dividend in and Rob can with as let me off start join well.

first up sheet. balance all, to, made shore of that the I think decision So, was

So we debt we have. are what addressing

flexibility as growth mentioned, our just that identify we it us is invest to in channels related giving ability to for we transformation and as the the new have think flexibility and that, I them. we

dividend I no think to to capital an way fair. we that's return longer And the add see effective I'd that shareholders. as

look we they to about the will some what you give of value I a new was this more asked weigh on to will an Board to them . appropriate. future of and immediate that opportunity with and respect think, will what greater allocation George and with loyalty Jim we that as is So the testing talking the think think capital With side way George that program the to respect more pro-benefits pre-owned redesign they about provide, in in the what is things consumer, in the at program, ROI recognition assess the a

a just nearly special to embrace. Rewards think we’re notion million one capability innovation the that We XX PowerUp testing and is in-house, in is really members of going

So new embracing getting value pilot things sure comes that with while team on are is to can, for always sorts Rewards. proposition, data the along those do of and it on best working we the the we PowerUp just our gain says, that currently we’ll the make PowerUp a also return

Telsey question. Group with has Feldman next Advisory Joseph our

just when I wanted can to ask, you’re reorganizing a on side, you trying what talk little more website, about clarity or the re-platform you ThinkGeek talked the ThinkGeek and to a doing little reorganize more there?

Sure.

team. teams leveraging I web we’ve built that of think redundant have with and properties. you the as collectibles well currently as the We can think it as inefficiency assets play redundant

GameStop separate we well we’ll with a the as the is as platform there What consolidate presence brand between GameStop backend the still still So, be while redundancy we’ll redirect, platform, so There's have operations. ThinkGeek initially, ThinkGeek run and ThinkGeek that leveraging efficiently. the have we least is collectibles can do all for thinkgeek.com to produce capabilities. a omni-channel off that at and more

time a And due, it's because dividend, that recognizing at, there you that you debt that that is get cash in have a there would again incremental but target that target little a then the be a to? you for just like to have level, Is that regarding guys you're follow-up, comment in that before mind level did trying to you guys million or paying so debt not dividend $XXX is. the with the

target hard in say wouldn't a I there's Yes, mind.

interest the I think recognizing at they're have rate. that XXXX, a favorable we

to debt level Jim capital and cash the be hard of one, allocation target and to EBITDA as to evaluate not opportunity bring give have the structure a to an policy. one We to a to entire closer to then that down to but the line little George capital that get perhaps and flow able and team

Suisse. Next, we'll hear Sigman Credit from with Seth

up follow pre-owned a on to want just on points, the I first couple business.

that I in communication? that actually I of to be that ultimately, facing marketing that more the Or you margins what clarify business proposition. challenges to today? And value here. Just there's meant reset? do George, if that category need proposition? you You your view is in business sure mentioned think guess, value the wasn't do with think issue and an

Yes, thanks for the Seth question.

hit well I think you pretty it.

more with I think at new digital. some gaming look that the use some to has the that, a be new core has and in of challenges on on if going clear game. business, been pre-owned versus to the value as demand business same game to of a based there's you supply proposition price the off a historically, addition place carry-over, But the the opposed

think to least there's the delta, that at And games. there, rationale buying pretty has I'm some clear we pre-owned so consistent for it be on

when So certain strategy about what benefit around so pre-owned is that hold how what is and the for that, customer we think we that's line there's will look on do guaranteed talk terms like always in of value. we pricing the

given mean you of parts would the been business. gross is could guess one of the hope the that So profit potentially dollars. highest typically drive margin help size margin us rate? better up for Just it's can that that the help changes I But what

cost gross I talk more it. component. you look say the Yes, at figure about right a transformation there's now. I as and you can of give on we a you the Look, specific think aspects don't rate margin When broadly,

You or predict to benefit that. that that there's year to can certainly in some immediacy some

it pricing optimization, On going is one middleware, ways. those business, things, business to which is both current work is the of

be But one this price, immediate certainly to of we're gross prices, get word we're we effect. see clear When something see we more a and the take long having customer. to say and elasticity dollars. equitable it a of will that that we're and margin on pricing, just for that run dollars understand for the having value margin trough lowering the fair to you can gross the by When laws believe raise prop going to the to going in

that million. timeline? next the And I any time. there a about as think think prospects guess, of over the over to of talked up we've years. improving follow just about that as $XXX we I change couple Is profitability here,

lower a phase guess, us showing I How the we guess you about in help the about medium about the the or think up should of And longer bit. profit I be term term. more of the on medium So the composition with first Help term, little results? narrow a we us think on SG&A, I that side. could inefficiencies If transformation little given progress and over then gross this guess bit. thinking in do that sales more

that's wins. right you think probably think I the this Again, phases, in three if of

a piece So you have and efficiency it. of cost

continue when the can from to going to pretty in-year probably in benefit that XXXX. we're and some aspect analyze It be well going establish greater the far work. there's you You obviously savings that the and a of delivering XXXX, XXXX was benefit savings in

Again, margins. gross think on indirect work, categories, the will in many of of form but improved I procurement will one be in optimization the that them also up show

a then in these more growth things on And is to strategy, the more piece pricing All we up business. of are talked difficult logical pole the side show the profit about gross verticals. and obviously controls. markdown likely longest the new most rate tent cadence, the this So of inventory

filling bit in incubator of a little take now I the the up. is that fact excitement

have those go that's in we streams. and latest in to we have rollout So we're them. we to vet be successes, actually revenue yet prepared but is call test the going things just new arrival test And flight, thoroughly them flight, those not

raise SG&A think right. you’re be first thing to going third. is in gross thing So I going going going second and be come to see profit the you're order, sales the will see, you're is to to

with hear from Markets. Capital Chukumba Anthony We’ll Loop now

my years. my Rob, question, all for and taking well thanks as the over your help for Thanks

So you be well? anyone's terms are we'll going in get week. current the Microsoft? with new up I with that model there one expectation mentioned your game, hearing current And you just also, next was my is of scuttlebutt cycle, consoles, new coming fact to switch Thanks. this that is that I you're as And at and with Sony coming consoles when that video disagree the will What's game year. wondering, that. least don't think hearing, And from just understanding I the up, guess EX particularly what longitude. video

makers we're I going around Anthony, think I'm expectations you, console to to the but disappoint themselves. to sorry the leave timing

with Merrill from hear We’ll Bank America of Instructions] Curtis Nagle [Operator now Lynch.

cut, no Is to of perspective, dividend reduction, capital but initiatives, turning Just mentioned back buybacks. mention debt the table? allocation you've some growth that off

I in this commentary, my mentioned As time. we're any not announcing at buybacks

business the new for the they understand going where to opportunities allocation. opportunity capital team learn and in an see We the get future are to management the give in,

self-driven? the do a part will you as of just Would consider then Or think you this wholly be And follow-up. acquisitions turnaround?

get Yes, looking this we're no more There are acquisitions self really driven. that talking about we won’t towards at time.

no the are to to for now there further closing turn call questions. over I George like back remarks. Sherman And would

for participation We in your GameStop. everyone excited Thanks in interest here. appreciate call. We're your be today's you. thank to Okay,

much We say believe you. certainly business team more we'll around. overtime. have a to that's And Thank turning this that committed to we have

for That will your conclude today’s conference you call. Thank participation.