GameStop (GME) 10 Dec 192019 Q3 Earnings call transcript

Welcome to GameStop’s Third Quarter 2019 Earnings Call. This call is being recorded and will be made available.

I would now like to turn the call over to Eric Cerny, Investor Relations. Please go ahead.

Thank you, and welcome to GameStop’s third quarter fiscal 2019 earnings conference call. include uncertainties which results that materially expectations. will various subject to call from and risks could conference forward-looking are statements, to differ This cause actual cautionary be the in release the and in conjunction Any SEC. harbor discussed earnings considered factors filed statement the safe should with such the reports statements risk and statement in with GameStop information. or these forward-looking assumes statements no obligation to update of any

release found issued our measures and today, discussed non-GAAP on in other the can call website. reconciliation as earnings A well financial be earlier of as the information the section regarding Investors

Executive With expectations framework George will me today year. for for will then the quarter and performance detail are GameStop’s, Bell. the fiscal call, third and Chief Jim Financial future. our George Jim On and our today's financial more results Officer, Officer, the provide updates strategic Chief Gamestop's on of into insight remainder share Sherman; regarding

the George company’s like the call to to I Now, Sherman. turn would over Officer, Executive Chief

year industry. Good XXXX. trend expectations line afternoon earnings overall and of anticipate call. carrying Thank believe we they into on quarter for by today's we direct to begin quarter, and remainder during today want first their third everyone, the call us remains softer outlook for the reflection direct Simply the you you. of impact this top our original put the our results our I than results on are and our thank a addressing joining

our the cycles alone Microsoft given NPD the console the are specialty stages confirming industry enter the During Sony cited final impact an are retailer low outsized we headwinds near-term current the as the historically in in having quarter in space. sales. business which The of we and

games, With is those in space, technology keep industry. and console XXXX issue publishers point nine the on This for horizon set excitement are significant a generation important not putting consoles video It's pressure current bring and anticipated issue. to consumers for game the the address delivery are mind related late the that new our trigger releases Generation on to plans. innovation a consoles as and wait is in GameStop uniquely software this to consoles their and of

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they expectations. generally well line were were our these with in below industry, the While

where store will this or over the pricing Monday Looking a likely believe our promotional Friday we've And example ahead, saw console clear trend next-generation we this next several is stage, if likely you doing consoles. the of Black or cycle, commoditization phase At checks shopping of until you're the driving the carry that entered through out launch sales. of Cyber discount stands. quarters

we're for along Given with down from the expectations. our industry promotional prior highlighted year revising declines, stance by unprecedented the significant outlook dynamics the

expect we outlook we that do the for line we business challenged, results and believe do of to environment what not have are impact quarter near-term the want While remains highlight. developments on their indicative top year, the results several for long top the of would the Despite line our I the remainder these term. in the for positive

operations Sweden. of business. evaluate begun areas Norway light, and In you of have Nordic to Denmark, we in shared the to to operations process in our Finland, we've business Europe, actions commitment of First, every address wind our and that our decisive with the take region down aspect including underperforming our

rate take will this yield in run $XX roughly effort improvement. EBITDA this While believe million will complete, we to several months

our efforts year. specifically us Second, resulted business our initiatives XX% generate These work to third inventory to over ending are to to and decline. cash down compared turn in strong last inventories, faster, reduce despite sales model, the enabling quarter the optimize flow

one-third our and for over repurchased at strategies over shareholders are investment our to $XXX the shares pursuing, we million, and the brings year. the beginning repurchase Third, shares. our we quarter, returning invested to total third quarter this of in outstanding and $XXX directly buybacks million a year the XX reflects in to of the of to This our capital tied over conviction of commitment million

about You'll I pillars against but for of wanted strategic hear progress before and quarter. to our highlight our our these performance today each call more each the discussing throughout quickly of them

several sales increase overall within strong are the have doing the as light, new Despite hardware, and double-digit we that such seeing innovations business where we to across things results, where Even Switch have our we are continuing recent within growth, Nintendo platform. switch consumer do interest sales well. that

merchandising floor across high-profile omni-channel set particular, Cyber in You platform. the highlighted Friday chain our the across in product can strength a reflected see as our gave our the across implemented and switch of placement and Monday recently offerings, and we platform Black the

title fewer we year, last have software, to where continues compared In despite performance. do market titles in leading slate an strong titles, share deliver underperforming to GameStop

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improve business as position take opportunity advantage unique collectibles year continued to see We product the our fan-favorite our show in growth, we of as this beyond. in franchises this category. to we Additionally, our offering leverage category launching continue and to

hardware can as drive capitalizing improvement the category. margins on headwinds on product the track. model for our improving gaming product are in an evolution Despite demand retail leverage industry efforts near-term for and to business current the our generation our As to expertise we leader and products, GameStop's we reposition in exclusives, keep software offering an

within better is the leadership are of GameStop's currently The irrespective leverage cycle. to console game we in retail position forward, groundwork video moving where

in. term do however, important We turnaround that is cycle it believe be in our immediate be will results. profit flow there to the new measured and impactful kicks to However, reemphasize apparent sales where console not through will

solid a four to progress for in our minutes the of the against our is that during third quarter share few of key you September. made out Remember pillars laid Let's plan on strategic take we anchored our call the tenets. strategy each four we on

optimize and by do. in effectiveness First, core improving the efficiency everything we

Second, online. hub GameStop create social cultural and each and gaming store the of within

do digital reach business Third, of fourth, content customers, and for the ecosystem both to a vendor relationships access our partner the and wherever with best future want and to gaming. they frictionless to products; digital our transform

and within our the optimizing organization, this improving that Where pillar business. effectiveness adding categories growing core restructuring, we the inventory pillar, base. rationalizing product across have optimizing the driven encompasses the most Recall cost high-margin and business and is by core first the and optimization, management global including progress efficiency store

goals are order This our primary and operating profit way improvement on pillar to initiatives that for we XXXX target. deliver other driver of to our need well the we on in implementing the is that

million coming of the half that roughly delivered $XXX profit half expense in margin the that product the we improvement know other enhancements. form while goal, from Of of reductions be will

over September, in XX% expense the executed we spoke are And we of we today reductions. When roughly complete. XX% had

compared items, see While the these $XX result reduction progress, to can year you actions. in one-time top-line excluding of of corporate a decline delivered last that in million we approximately some overhead as our masked our

sight and this confident deliver to our have goal. We line are XX% clear in of ability remaining on

stock management From inventory of an year, of XX% last a position our quality compared both levels. I inventory terms perspective, overall and significantly highlighted reduction to already improved representing in

to continue our will flows. optimizing inventory focus our We protect position our efforts to strong cash on

make to store, manifest we've reinforcing in And for take to shop into things one-stop our progress continue expanding of these began PC gaming -- games. margin categories. initiatives position themselves, as the while video all many also We longer higher may accessories to a already

label Along across in those objective capabilities continue presence within our other for to game our our also expand already and leveraging we global accessories private items. our advance organization We're opportunities video to footprint. that grow exist to lines, the

see front the team new organizational new I continue improvement by mentioned the we leadership in collectibles category and leveraging structure. the to as drive On margin the earlier, to opportunity merchandising

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a partner to a We leverage the has community decades. trusted for have tremendous to brand been gaming

The ongoing offer growth for esports, like of video significant games growth potential and GameStop. offshoots

have help we capabilities testing us those capturing unique some September, to developed the path in opportunities. to introduced we uncover As proper

what share And we rapid element early is stores important while XX specifics, XX experimentation. we customer re-imagined these market. within stores. customer immersive To our Oklahoma evolution are learning very we've too from An encouraged numerous experiences in end, we're testing of are centric to by that that this Tulsa, the it's

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PowerUp frequency customer tested paid these enrollment increase efforts we with customers. drive duration at and to more and shoppers resonated center's the within visit Specifically, here, that design from found approach

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network critical to new this upcoming advancement leadership entail with position cycle, will consultative the the process selling the our affinity of which business technology. console a over-index position Growing new in will knowledgeable

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up we've KPI. a is These seen transactions, the are in-store online improving new pick positive experience. the perhaps indications all triple-digit in Importantly, website that buy most customer increase important the

our which relationships a progressing, and transforming vendor Finally, pillar entails opportunity. partner remains is long-term our fourth but

the recognize We they to omni-channel expert share formalized. continue and that on value We long-term very our constructive more we discussions with forward engagement hope as provide. is our in selling reach this have initiative to path information and partners consumer XXXX detailed

on In are strategic summary, making progress we our solid initiatives.

continue to we a are clear importantly, quickly improving that be We today. pursuing are to the decisive we a the move of more But quick see near-term over taking action. business business fix. and not sustainability will We based even and on know this that path the longer-term success strategies

in we store that cash management over top gross performance flows, and September, sales to enhancing flow our business transition delivering expansion overall on, and our line are profit should committed cash already mapped console performance our quarters we and strong results. evaluate seeing said the by you you on to somewhat on across categories, disciplined things Instead, the generate expense inventory expansion, traction next are during all management, while comparable not this further. several margin ability As should retail evaluate operating

Despite and top business transform the business operate increased model, headwinds company position launch the generates that line stronger anticipated, a cycle. efforts that has drive sheet console profitability we lows. when industry softer to our new returns industry and we balance positive As to model than will we the cash healthy continue still believe the we to a a

this activity also by returning excess we to reflected to Importantly, as our share committed capital year. repurchase remain shareholders,

moment to I call to thank for efforts of all before to want our and work exceptional hard service take to turn customers. deliver tireless our I Jim, product the and over associates to this knowledge the

deliver a are associates dedicated around eager retail. you Thank all to among holiday globe the out are outstanding passionate they note. most the and customers an hard And you, know, Our for are do. experience to on and the period close our I working and for strong

details year. Now, to for for turn call I'll results the the of and quarter over Jim the remainder on more outlook the

afternoon good and George you, Thank everyone.

breadth the are for The third in mentioned, cycle. are we which George than expected. and highly penetrated our video end quarter, gaming we As manufacturers primarily launches reflect more in by of It's console than industry-wide the usual of and discounts bring decline industry, where market in a from the cycle market. the of disappointed of impact depth was reluctance announcement slowdown, challenges driven the console we reflects topline console of upcoming OEMs in results earlier to the the to originally the

of the volume pressure All significant of on generation putting factors are these current products.

few spots, as were quarter, continued collectibles bright Nintendo our growth business. product line as There within during a in including however, the the positive well solid gains switch

were gains slowdown the enough suites. not these simply and product in offset However, Microsoft Sony to both

model of continue will XXXX. a business be a strong the underperforming waiting This to flow-through, As when continued on late all and through the cash ensure portfolio launched flow. for of next management, will free consoles consumer focus of positioned are the next-generation strengthening inventory we in improved through believe Sony work on optimize management of optimization, businesses quarters rationalization profit our believe and Microsoft we optimize our to which what already includes we expense focus and is next-generation consoles, we several to greatest navigate

get moment more results our in moment. high income, of a the our bit affected tax into And want for for in outlook At the our line in relatively I were volatility our magnifying recap I'll into noncash a bottom performance a I get the low take the stems year, quarter, that taxes the detail primarily little rate. Before to which by level quarter. of level, a from taxable to

stores quarter $XX.X and On a perspective, to store topline primarily operating fiscal basis sales from million rates. or negative delivered a points XXXX. operating by loss charges related we XX.X% exchange of $XX.X third other of $XX.X an a reported driven an basis, adjusting was From from impairments compared the of we to onetime impact total decline of closed decrease loss to transformation, for delivered items XXX declined foreign a million, This XXX point asset our basis approximately sales comparable XX.X%, and million.

management were focus are store by in rates new market we pleased early reflecting counts associates. improvements per the including results comp our our hardware sales transaction positive transaction merchandising and and within driven our lower strategies SKU primarily from basket, units productivity, While results with the software, driven enhanced on store by attachment comparable merchandising of digital strong

category software. were a we video have perspective, the mentioned, From of primary drivers as the new decline game and hardware

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worse where performing is the last category mid generation were the console XX% range. Importantly, declines than the ship the in

of do lines As the an intend increases. continues to and the within we continued believe what product platform can strong category deliver switch innovation for indicator hardware double-digit to

comps growth good, in to software was a From software perspective, platforms. enough Nintendo new double-digit but offset negative Switch not other across

including Xbox in significant title Spider in last lineup, X Man. I Red by record-setting and titles driven the strong PSX was year's mentioned, Redemption quarter and the decline As software Dead

of we product posting for foreign in bright the further before continues continue improve collectibles be our offering spot our growth the to a Our retail expect X.X% we improve and execution. expertise growth exchange business quarter impact, and category this to as leverage to

our pre-owned video declined year-over-year, continue to Our opportunities leadership quarter improvement second did the pre-owned to from as leverage business in four we percentage find game point market. a realize the product we sequential but XX% position

gross third categories year. we compared versus pre-owned our strong XXX basis expansion quarter demand margins XX.X% the saw in Indicative all our switch points approach, optimize gross video video to new to third categories, overall see Almost, XX.X%, margin game merchandising efforts to Consistent the year. of game last our increased with Switch quarter continue products. Nintendo last for to consolidated

associated Now, to objectives. Reboot year. the expenses our cost million, aggressively in decline SG&A transformation X% for rationalize charges third the versus severance with structure our and efforts business. quarter This a directly last management and roughly is turning reflecting ongoing related to reduction expense our to our were of $XX one-time adjusting $XX or million, our overall million GameStop improvement initiative, of profit After $XXX roughly expenses other

reported for a $XXX was As the third compared $XXX million, SG&A year ago. million quarter to

variability, third as the the reported the year. Revisiting tax impact for XX%, projected quarter the of of our lower due impact was for earnings tax to rate negative effective

$XX approximately the note discrete quarter above, million. of taxes of to Additionally, tax mix also tax items, was for adjusting reflective The these share is million in there adjustments were across the quarter. our It million of expense $XX.X $XX.X million, we $XX the per and primarily including that the certain important operate. third not the for $X.XX tax after is to or related diluted impact a adjusted valuation non-cash cash of allowance the earnings jurisdictions noted which

GAAP As a expense taxable volatile. relatively result being and resulting reported of U.S. rate be income low, our our can tax

However, are This in impact quarterly year effective the results full to material. be will results. overall normalize tax our and cash not the taxes year expense rate is for the and the unique expected to

basis, continuing $XXX.X for net On approximately million, included $XXX year, impairment operations million a which in loss a reported loss our quarter $XX.X was the third net million quarter compared charges. to of from the in last

$XX noted our fiscal or charges, related XXXX includes include The costs above share, per impairment non-cash million non-cash third ongoing asset as to charges the as transformation, diluted which $X.XX well tax adjustment other quarter of results items.

of debt of XXXX. $XXX the compares $XXX the at million $XXX cash We of of balance million in This end million, to line revolving year. third of prior the the million we the At third total $XXX in our with liquidity including and fiscal liquidity availability cash total the the had $XXX and Now, of to credit. million $XXX quarter quarter million and under end net quarter, of ended sheet. total turning cash in versus

quarter billion inventory in billion of $X.XX the prior reduction with year, XX.X%. the third We of total compared ended a $X.XX to

As for working strong business we increase of of the generation flow inventory we said, inventory as have seek cash us, area to improve our a and to materially capital significant reduction our is model. on improve focus turns

given sales In a of our took positive ability continue even we capital and terms price to share. models strength the returned cash weighted advantage to shareholders generate business our repurchases allocation, during share tough of quarter balance in flows, XX.X at share $X.XX sheet $XXX our the of price per environment, of through to shares average and million the equating to depressed million approximately of a

dividend, third of of in XX% the the shares quarter repurchased to of in million first Year-to-date to return coming our million is our to now of quarter, strategic shareholders we through via commitment ability repurchases total, share reflection profitability. the into returned end our quarter have over fiscal shareholders. conviction for pursuing the enhance $XXX In we the shares a This and their our initiatives the approximately we've to year. clear a third capital year-to-date through and are total the XX.X outstanding

remaining of quarter As the of million, year-to-date we third our capital down million. be authorization. capital total repurchase million million $XXX current of bringing the the end expect third $XX to expenditures our had expenditures We now under year had $XX and $XX we between million guidance. the In previous from quarter, approximately full to $XX

our return strong well ratios. I the expectations continue balance will maintain a returns we our to fiscal shareholders for evaluate XXXX. will ways to forward, for as all Going of sheet stakeholders as rest while importance now provide capital to optimizes shift debt the balancing to that to

With quarter us important the in trends current the Black the video outlook based including Cyber and impact of Friday, cyclicality sales the from the XXXX on anticipate industry-wide Microsoft. to in fourth until shopping We business the the our Sony consoles launch into we nine updating behind of are concluded, period Monday the third headwinds console category. the and to the business the generation quarter through of rest and game continue

consoles a trends, into delays one already year publishers, publisher of much We experienced fiscal number flight year, and we XXXX. have next which XXXX high teens. downward revision from comparable of to for decline the launch our to title pending same-store announcing light the now also contributed of anticipate to anticipate of continue sales consolidated in for next given a those new pedal portion lighter In a fiscal

aspects a markets of our continue the track last profit on of and already XXXX. consistent and efforts stores fiscal we these underperforming Approximately supports our areas. in the closed new of our underperforming we on XXX with of are stores of earlier stores is have very year. production global basis, optimize business, The years evaluation underperforming rate As XXX to between net less closure our continued openings to select end of to several the fleet dedensify and XXX trade by in

of to countries, we these at these thorough expect Further the wind XXXX. our full exit four the Nordic in and late down and careful as their business review Finland, markets George in to Sweden, Norway by operations mentioned, and process Denmark, began

is be We positive a expect $XX EBITDA impact exit to run over the contribution rate million. once complete the year just of annualized full

the expect Given above range. million fiscal to in of generate cash we full and billion $X.XX after $XXX onetime in in year be EPS as the balance line items and to adjusting expect impact $X we the the now XXXX. we between to adjusted cash for declines the total the ending for items free and in the top $X.XX aggregate expected softer for Despite year sales, anticipate than particularly the $XXX and flow excess million liquidity our strong of remains sheet with in business, trend

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may we'll over I questions that and to will call the any you the operator now turn take have.

Wissink Stephanie you. ahead. question Thank Instructions] [Operator Please first We'll through go our from Jefferies. now take

think The versus Stephanie for optimization our SG&A Hi, going cost in distorted even forward? question. Ashley remains the of with Thanks How should sales for taking ratio place. Wissink. we this program the phasing about Helgans is savings on

is hi, -- think this Jim. I Yeah, Ashley

savings can better course I majority starts see over a the of but year you on obviously an as think this versus to annualize year the going see impact in the vast annualized it can it -- you as of third we've quarter about basis. to XXXX, talked you're last the

just really this of first full third You're quarter seeing a effect the quarter in year. the

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Just on the any reason down for collectible were change? margins the year-over-year

Yeah.

We Ashley as through the saw inventory being standpoint. it's to what's collectible some need work George. that brought was productive not as a from in

So loan was margin very some inventory. the actually effort go to a on and that our rate is it move down category through it had conscious part

focused this is are also it makes and then going us sense being for places take it able on on inventory I we the manage do of decisive indicative management to where especially the to as think we action how pipelines our forward.

Thank Thanks someone color. to for pass I’ll the else. off it you.

Seth from Sigman ahead. Credit Suisse. our question go Please take next with now We'll

Lavesh on Hi, this is Hemnani Sigman. Seth for

I cash could you offset thinking components free lower you Our cash earnings? year? for of just flow are the how first on And question about the is the the flow. mean free about levers to talk

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it. Got

short follow-up in on I that, any a do reduction I you to be on able related And views updated opportunities any win cost are cost this to what plan? find the Do mean, the term, is progressing? extent incremental to on you your how you plans. prior sales? the versus restructuring think have may mean, Just And,

off with on start cost. me Let question your

end of quarter million. think, out, XX% the last way the time on said I we of they're side better $XXX of at last XX% the reduction than expense the the and

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it's a moving again, mean, target. I

on see flows million full that understand We visibility that that And obviously, out. $XXX getting to straight make continue full bottom we the to that to progress the we cost line.

upside be certainly So it. pursue if there's we'll go to had,

I any in from you seeing sales mean, are the this? short-term impact on

on sales? Impact the

From making. other particularly rationalizing and changes Yes. store within From making you're the you're that the and the changes any SKUs for initiative works you?

Yes.

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Thank Obviously. you.

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now Please from Consumer question Stochel with our ahead. Ray go next Edge Research. take We'll

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do. the Yes. same thing Ray, you we know virtually

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of our Curtis Please America. take question ahead. go next now Bank with We'll Nagel from

results in then? year a cycle to to to much guess, just the there's there's taking a around not but point or can I so for then still not of Thanks uncertainty the interest buyback. business preserve at just best it's it why why much and buy from that happen evening. now the focused is on now to one cash? I back guess company and when the And the lot from new continue disappoint? coming, the moment I the And Good question. so guess first stock the a

is this Jim. Yes, Kurt,

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it. just then Got And a follow-up.

XQ. you the parameters If through could on just go

And First little is EBITDA between Is the then XX%. in profitability million could around on around of new and year-to-date I adjusted give that guiding terms kind take that flow. $XXX of share funny or math up. and guide, non-adjusted the down right? XQ over a implied is I count, comps more think it just some then but follow the something like What's moving bridge and the free cash right? in the one EBITDA based gets looks is And if

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your second that question I'm of about... part second is -- the the part repeat sorry Now,

of Yes, dollar unadjusted? what's just and terms in the bridge adjusted between

Yes of this late we was -- XXXX. from XXXX $XXX fiscal that or XXXX. and past. the That we've in to related that quarter again of two had some the fourth Last year, of in carried described million first we over AP paid got week inventory the

to free So buys. XXXX really It's flow, really when just related it's talk the was inventory all. in we inventory affecting That's levels adjusted about cash that.

million. So little it's a over $XXX

Okay. Terrific. very Thanks much.

bet. You

Advisory [Operator our Feldman ahead. next from question Joe with Please We'll Group. take go Instructions] now Telsey

you're can is XX% – see that to I up? when you showing know that? you mean, cost – – But hard I'm talking seeing and And taking question. for highlight we're sales that I we know to quite maybe the improving not you savings curious can ask it's coming that where Thanks on I wanted guys. of should and the model I I profitability way where said – guess, you Hi, about you this think Yeah. can I'm in at as level. the I – have yet. down

Yeah.

in And part SG&A. first really we're again, of a million XX% of on there we the about side. way that $XXX the the $XXX all cost about million, structure The roughly from cost to – talked that's is the it

a see You're – there of in of to some albeit the mix bit effects SG&A. in as the impact the expansion is side components main little starting well. margin is But product this – to terms some really there in the starting cost is

And Joe let me add.

run at I think you've got difference in to and rate. the between look year

getting of savings to rate. our So plan of run improvement when part about $XXX $XXX talk we profit million million expense is that as

So in be of structural infer of going see some of your to in that you're going summer. in contract that can towards run you the to savings, rest from come XXXX of majority changes. end it's the we here is the The to made the rate changes going what correctly forward-looking

just looking a $XX that's million be a – subset it's your So shouldn't $XX or savings. in for you

a So that be XXXX. $XXX exiting million was into clear just run rate to XXXX

working it that's continue on work of and accumulation quarters. the to the over throughout – of of the – frame the we'll next on handful already, we've the that course we So course been of time

it. Thanks. Got

follow-up. a Okay. And quick just then

how changed and sign-ups that, the the with or know I tier to know the curious, been? guess just just there's a I and the loyalty maybe you're the feedback you – You program pro. guys getting? for And new response has regard

the into drive is level It meant frequency single for the Yeah. month. trips mean, some asking. built to It's really store. of been every Thanks really coupon terrific. change I of is off the premise of

rates we the year of the with the program. membership, we've were seen launching During sign-up that since thrilled

nice program and holiday Black the a progress off it's just So a the seen start. very over customer. And on weekend. that great reception Certainly, good leverage by we've Friday we to

you guys. great. That's great. That's for Thanks update. the Thank

Joe. you, Thank

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

year like Thank you. again Thanks for for work of hardest put very We Blackfriday, much time for they in success in everyone's season to opportunity our weekends thank interest the for hard at our Monday during I take the teams teams today. to of XXXX want do Cyber all for especially joining the the continued their appreciate holiday this success. GameStop. in. a our everything -- them they to I effort thank the to want year us make

a to Thank improve model work and as We management with of a to continue team, we transition stakeholders we As of the long-term you. the to business sense the position our GameStop all support appreciate success. urgency for future.

This you concludes for today's call. participation. your Thank

may disconnect. now You