Third Quarter Net Sales of $1.99 BillionGAAP
Diluted EPS of $0.59, Including a Non-Operating Benefit of
$0.11
GameStop Corp. (NYSE:GME), a global family of specialty retail
brands that makes the most popular technologies affordable and
simple, today reported sales and earnings for the third quarter
ended October 28, 2017.
“Our third quarter sales results were driven by
strong software demand and continued momentum for Nintendo Switch
and collectibles,” said Dan DeMatteo, interim chief executive
officer. “As we enter the fourth quarter, we are encouraged by the
initial customer response to Microsoft’s Xbox One X, and believe
that the holiday season results will be driven by new console
hardware and collectibles. Our Technology Brands AT&T Wireless
business underperformed our expectations for the third quarter and
we anticipate that the fourth quarter results will be highly
dependent on the availability of Apple’s next-generation iPhone
X.”
Third Quarter ResultsTotal
global sales increased 1.5% to $1.99 billion (flat in constant
currency), resulting in consolidated comparable store sales growth
of 1.9% (+0.6% in the U.S. and +4.6% internationally). New hardware
sales increased 8.8%, led by demand for Nintendo Switch, and new
software sales increased 5.4% driven by a strong title lineup.
Pre-owned sales declined 2.4%. Worldwide omnichannel sales
increased by 38.6% on the strength of new hardware sales.
Digital sales and non-GAAP digital receipts
increased 11.9% and 8.3%, respectively, excluding the third quarter
2016 revenues from Kongregate which was sold in July 2017. On a
reported basis, digital sales declined 16.8% to $37.2 million,
while non-GAAP digital receipts increased 1.8% to $263.7
million.
Collectibles sales increased 26.5% to $138.4
million, driven by continued expansion of licensed merchandise
offerings both domestically and internationally. The Collectibles
business is on track to meet its 2017 revenue target of $650
million to $700 million.
Technology Brands sales decreased 10.2% to
$194.2 million, driven primarily by the later than expected release
of Apple’s iPhone X and the previously disclosed change in
AT&T’s dealer compensation structure. Operating earnings
decreased 23.4% to $18.0 million. Technology Brands adjusted
operating earnings were $11.2 million, a 52.3% decrease compared to
$23.5 million in the prior-year quarter.
GameStop’s third quarter net earnings were $59.4
million, or $0.59 per diluted share, compared to net earnings of
$50.8 million, or $0.49 per diluted share in the prior-year
quarter. The third quarter results include a benefit of $6.8
million ($4.3 million, net of tax) related primarily to a reduction
of previously accrued contingent purchase price consideration and
lease obligations for previously closed stores in our Technology
Brands AT&T Wireless business.
Excluding this gain, GameStop's adjusted net
earnings for the third quarter were $55.1 million, compared to
adjusted net earnings of $50.8 million in the prior-year quarter.
Adjusted diluted earnings per share were $0.54 compared to adjusted
diluted earnings per share of $0.49 in the prior-year quarter. The
Company benefited from a lower effective tax rate resulting from
the recognition of discrete tax items during the quarter,
positively impacting diluted earnings per share by $0.11.
A reconciliation of non-GAAP results, including
adjusted net income, operating earnings and Technology Brands
operating earnings to its closest GAAP measure is included with
this release (Schedule III).
Credit Agreement AmendmentOn
Monday, November 20, 2017, the company entered into an amendment to
its existing asset based credit facility. The amended agreement
contains more favorable terms, extends the maturity date of the
facility to November 2022 and increases the capacity under the
credit facility from $400 million to $420 million to allow for
increased flexibility for future needs of the business.
Capital Allocation UpdateOn
November 17, 2017, GameStop’s board of directors declared a
quarterly cash dividend of $0.38 per common share payable on
December 12, 2017 to shareholders of record as of the close of
business on December 1, 2017.
Earnings OutlookThe company is
reiterating its full-year diluted earnings per share guidance of
$3.10 to $3.40, and expects full-year comparable store sales to
increase in the low-to-mid single digits.
Conference Call InformationA
conference call with GameStop Corp.’s management is scheduled for
November 21, 2017 at 4:00 p.m. CT to discuss the company’s
financial results. The phone number for the call is 800-334-0872
and the passcode is 7989279. This call, along with
supplemental information, can also be accessed at GameStop Corp.’s
investor relations home page at http://investor.GameStop.com/. The
conference call will be archived for two months on GameStop’s
corporate website.
About GameStopGameStop Corp.
(NYSE:GME), a Fortune 500 company headquartered in Grapevine,
Texas, is a global, multichannel video game, consumer electronics
and wireless services retailer. GameStop operates more than 7,400
stores across 14 countries. The company's consumer product network
also includes www.gamestop.com; Game Informer® magazine, the
world's leading print and digital video game publication; and
ThinkGeek, www.thinkgeek.com, the premier retailer for the
global geek community featuring exclusive and unique video game and
pop culture products. Our Technology Brands segment includes 1,500
Simply Mac, Spring Mobile AT&T and Cricket stores. Spring
Mobile, www.springmobile.com, sells all of AT&T’s products
and services, including DIRECTV and offers pre-paid wireless
services, devices and related accessories through its Cricket
branded stores in select markets in the U.S. Simply
Mac, www.simplymac.com, sells the full line of Apple products,
including laptops, tablets, and smartphones and offers Apple
certified warranty and repair services.
General information about GameStop Corp. can be
obtained at the company’s corporate website. Follow @GameStop and
@GameStopCorp on Twitter and find GameStop on Facebook
at www.facebook.com/GameStop.
Non-GAAP MeasuresAs a
supplement to our financial results presented in accordance with
U.S. generally accepted accounting principles (GAAP), GameStop may
use certain non-GAAP measures, such as adjusted operating earnings,
adjusted net income, digital receipts and constant currency. We
believe these non-GAAP financial measures provide useful
information to investors in evaluating our core operating
performance. GameStop defines digital receipts as the full amount
paid by the customer for digital content at the time of sale and/or
the value attributed to digital content when physical and digital
products are sold combined. Results reported as constant currency
exclude the impact of fluctuations in foreign currency exchange
rates by converting our local currency financial results using the
prior period exchange rates and comparing these adjusted amounts to
our current period reported results. Our definition and calculation
of non-GAAP measures may differ from that of other companies.
Non-GAAP financial measures should be viewed in addition to, and
not as an alternative for, the company's reported GAAP financial
results.
Safe HarborThis presentation
contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements
may include, but are not limited to, the outlook for fiscal 2017,
future financial and operating results and projections, projected
store openings, timing and terms of potential acquisitions, the
company's plans, objectives, expectations and intentions, and other
statements that are not historical facts. Such statements are based
upon the current beliefs and expectations of GameStop's management
and are subject to significant risks and uncertainties. Actual
results may differ from those set forth in the forward-looking
statements. GameStop undertakes no obligation to publicly update or
revise any forward-looking statements. The following factors, among
others, could cause actual results to differ from those set forth
in the forward-looking statements: the inability to obtain
sufficient quantities of product to meet consumer demand, including
console hardware and accessories; the timing of release and
consumer demand for new and pre-owned video game titles; our
ability to continue to expand, and successfully open and operate
new stores for, our collectibles and tech brands businesses; risks
associated with achievement of anticipated financial and operating
results from acquisitions; our ability to sustain and grow our
console digital video game sales; the timing and amount of
recognition of tax attributes; the risks associated with
international operations, wireless industry partnerships and
operations and the completion and integration of acquisitions;
increased competition and changing technology in the video game
industry, including browser and mobile games and digital
distribution of console games, and the impact of that competition
and those changes on physical video game sales; the costs and
consequences of legal proceedings and tax audits; and changes in
domestic or foreign laws and regulations that reduce consumer
demand for, or increase prices of, our products or otherwise
adversely affect our business. Additional factors that could cause
GameStop's results to differ materially from those described in the
forward-looking statements can be found in GameStop's Annual Report
on Form 10-K for the fiscal year ended Jan. 28, 2017 filed with the
SEC and available at the SEC's Internet site
at http://www.sec.gov or http://investor.GameStop.com.
|
GameStop Corp. |
Condensed Consolidated Statements of
Operations |
(in millions, except per share
data) |
(unaudited) |
|
|
|
|
|
|
|
13 weeks ended October 28,
2017 |
|
13 weeks ended October 29,
2016 |
Net sales |
|
$ |
1,988.6 |
|
|
$ |
1,959.2 |
|
Cost of sales |
|
1,299.2 |
|
|
1,251.0 |
|
Gross
profit |
|
689.4 |
|
|
708.2 |
|
Selling, general and
administrative expenses |
|
565.1 |
|
|
567.1 |
|
Depreciation and
amortization |
|
36.7 |
|
|
42.3 |
|
Operating
earnings |
|
87.6 |
|
|
98.8 |
|
Interest expense,
net |
|
13.9 |
|
|
14.8 |
|
Earnings
before income tax expense |
|
73.7 |
|
|
84.0 |
|
Income tax expense |
|
14.3 |
|
|
33.2 |
|
Net
income |
|
$ |
59.4 |
|
|
$ |
50.8 |
|
|
|
|
|
|
Net income per common
share: |
|
|
|
|
Basic |
|
$ |
0.59 |
|
|
$ |
0.49 |
|
Diluted |
|
$ |
0.59 |
|
|
$ |
0.49 |
|
|
|
|
|
|
Dividends per common
share |
|
$ |
0.38 |
|
|
$ |
0.37 |
|
|
|
|
|
|
Weighted-average common
shares outstanding: |
|
|
|
|
Basic |
|
101.5 |
|
|
103.7 |
|
Diluted |
|
101.5 |
|
|
104.0 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net
Sales: |
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
|
100.0 |
% |
Cost of sales |
|
65.3 |
% |
|
63.9 |
% |
Gross
profit |
|
34.7 |
% |
|
36.1 |
% |
Selling, general and
administrative expenses |
|
28.5 |
% |
|
28.9 |
% |
Depreciation and
amortization |
|
1.8 |
% |
|
2.2 |
% |
Operating
earnings |
|
4.4 |
% |
|
5.0 |
% |
Interest expense,
net |
|
0.7 |
% |
|
0.7 |
% |
Earnings
before income tax expense |
|
3.7 |
% |
|
4.3 |
% |
Income tax expense |
|
0.7 |
% |
|
1.7 |
% |
Net
income |
|
3.0 |
% |
|
2.6 |
% |
|
|
|
|
|
|
|
|
GameStop Corp. |
Condensed Consolidated Statements of
Operations |
(in millions, except per share
data) |
(unaudited) |
|
|
|
|
|
|
|
39 weeks ended October 28,
2017 |
|
39 weeks ended October 29,
2016 |
Net sales |
|
$ |
5,722.1 |
|
|
$ |
5,562.5 |
|
Cost of sales |
|
3,706.5 |
|
|
3,561.1 |
|
Gross
profit |
|
2,015.6 |
|
|
2,001.4 |
|
Selling, general and
administrative expenses |
|
1,671.0 |
|
|
1,606.3 |
|
Depreciation and
amortization |
|
112.3 |
|
|
124.0 |
|
Operating
earnings |
|
232.3 |
|
|
271.1 |
|
Interest expense,
net |
|
42.2 |
|
|
39.2 |
|
Earnings
before income tax expense |
|
190.1 |
|
|
231.9 |
|
Income tax expense |
|
49.5 |
|
|
87.4 |
|
Net
income |
|
$ |
140.6 |
|
|
$ |
144.5 |
|
|
|
|
|
|
Net income per common
share: |
|
|
|
|
Basic |
|
$ |
1.39 |
|
|
$ |
1.39 |
|
Diluted |
|
$ |
1.39 |
|
|
$ |
1.39 |
|
|
|
|
|
|
Dividends per common
share |
|
$ |
1.14 |
|
|
$ |
1.11 |
|
|
|
|
|
|
Weighted-average common
shares outstanding: |
|
|
|
|
Basic |
|
101.4 |
|
|
103.8 |
|
Diluted |
|
101.5 |
|
|
104.2 |
|
|
|
|
|
|
|
|
|
|
|
Percentage of Net
Sales: |
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
|
100.0 |
% |
Cost of sales |
|
64.8 |
% |
|
64.0 |
% |
Gross
profit |
|
35.2 |
% |
|
36.0 |
% |
Selling, general and
administrative expenses |
|
29.1 |
% |
|
28.9 |
% |
Depreciation and
amortization |
|
2.0 |
% |
|
2.2 |
% |
Operating
earnings |
|
4.1 |
% |
|
4.9 |
% |
Interest expense,
net |
|
0.7 |
% |
|
0.7 |
% |
Earnings
before income tax expense |
|
3.4 |
% |
|
4.2 |
% |
Income tax expense |
|
0.9 |
% |
|
1.6 |
% |
Net
income |
|
2.5 |
% |
|
2.6 |
% |
|
|
|
|
|
|
|
|
GameStop Corp. |
Condensed Consolidated Balance
Sheets |
(in millions) |
(unaudited) |
|
|
|
|
|
|
|
October 28, 2017 |
|
October 29, 2016 |
ASSETS: |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
|
$ |
454.7 |
|
|
$ |
356.1 |
|
Receivables, net |
|
195.8 |
|
|
181.1 |
|
Merchandise inventories, net |
|
1,822.5 |
|
|
1,633.6 |
|
Prepaid
expenses and other current assets |
|
198.0 |
|
|
188.0 |
|
Total
current assets |
|
2,671.0 |
|
|
2,358.8 |
|
Property and
equipment: |
|
|
|
|
Land |
|
19.2 |
|
|
17.9 |
|
Buildings
and leasehold improvements |
|
752.9 |
|
|
726.9 |
|
Fixtures
and equipment |
|
986.7 |
|
|
925.1 |
|
Total
property and equipment |
|
1,758.8 |
|
|
1,669.9 |
|
Less
accumulated depreciation |
|
1,300.9 |
|
|
1,166.8 |
|
Net
property and equipment |
|
457.9 |
|
|
503.1 |
|
Goodwill |
|
1,693.2 |
|
|
1,726.8 |
|
Other noncurrent
assets |
|
651.9 |
|
|
641.9 |
|
Total
assets |
|
$ |
5,474.0 |
|
|
$ |
5,230.6 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
Current
liabilities: |
|
|
|
|
Accounts
payable |
|
$ |
1,285.1 |
|
|
$ |
1,242.6 |
|
Accrued
liabilities |
|
914.9 |
|
|
877.8 |
|
Income
taxes payable |
|
17.5 |
|
|
30.7 |
|
Total
current liabilities |
|
2,217.5 |
|
|
2,151.1 |
|
Other long-term
liabilities |
|
125.6 |
|
|
141.1 |
|
Long-term debt,
net |
|
817.2 |
|
|
814.3 |
|
Total
liabilities |
|
3,160.3 |
|
|
3,106.5 |
|
Stockholders’
equity |
|
2,313.7 |
|
|
2,124.1 |
|
Total liabilities and
stockholders’ equity |
|
$ |
5,474.0 |
|
|
$ |
5,230.6 |
|
|
|
|
|
|
|
|
|
|
|
GameStop Corp. |
|
Schedule I |
Sales Mix |
(unaudited) |
|
|
|
|
|
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
October 28, 2017 |
|
October 29, 2016 |
|
|
Net |
|
Percent |
|
Net |
|
Percent |
Net Sales (in
millions): |
|
Sales |
|
of Total |
|
Sales |
|
of Total |
|
|
|
|
|
|
|
|
|
New video game
hardware |
|
$ |
309.5 |
|
|
15.6 |
% |
|
$ |
284.4 |
|
|
14.5 |
% |
New video game
software |
|
649.9 |
|
|
32.7 |
% |
|
616.6 |
|
|
31.5 |
% |
Pre-owned and value
video game products |
|
458.5 |
|
|
23.0 |
% |
|
470.0 |
|
|
24.0 |
% |
Video game
accessories |
|
136.4 |
|
|
6.9 |
% |
|
156.0 |
|
|
8.0 |
% |
Digital |
|
37.2 |
|
|
1.9 |
% |
|
44.7 |
|
|
2.3 |
% |
Technology Brands |
|
194.2 |
|
|
9.8 |
% |
|
216.3 |
|
|
11.0 |
% |
Collectibles |
|
138.4 |
|
|
6.9 |
% |
|
109.4 |
|
|
5.6 |
% |
Other |
|
64.5 |
|
|
3.2 |
% |
|
61.8 |
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,988.6 |
|
|
100.0 |
% |
|
$ |
1,959.2 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule II |
Gross Profit Mix |
(unaudited) |
|
|
|
|
|
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
October 28, 2017 |
|
October 29, 2016 |
Gross Profit (in
millions): |
|
GrossProfit |
|
GrossProfitPercent |
|
Gross Profit |
|
Gross Profit Percent |
|
|
|
|
|
|
|
|
|
New video game
hardware |
|
$ |
36.8 |
|
|
11.9 |
% |
|
$ |
37.3 |
|
|
13.1 |
% |
New video game
software |
|
155.9 |
|
|
24.0 |
% |
|
150.0 |
|
|
24.3 |
% |
Pre-owned and value
video game products |
|
199.7 |
|
|
43.6 |
% |
|
218.0 |
|
|
46.4 |
% |
Video game
accessories |
|
48.5 |
|
|
35.6 |
% |
|
49.6 |
|
|
31.8 |
% |
Digital |
|
34.1 |
|
|
91.7 |
% |
|
35.0 |
|
|
78.3 |
% |
Technology Brands |
|
141.4 |
|
|
72.8 |
% |
|
159.6 |
|
|
73.8 |
% |
Collectibles |
|
52.7 |
|
|
38.1 |
% |
|
39.7 |
|
|
36.3 |
% |
Other |
|
20.3 |
|
|
31.5 |
% |
|
19.0 |
|
|
30.7 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
689.4 |
|
|
34.7 |
% |
|
$ |
708.2 |
|
|
36.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GameStop Corp. |
|
|
|
|
|
Schedule III |
(in millions, except per share
data) |
(unaudited) |
|
Non-GAAP resultsThe following
table reconciles the Company's operating earnings, net income and
earnings per share as presented in its unaudited consolidated
statements of operations and prepared in accordance with GAAP to
its adjusted operating earnings, net income and earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
39 Weeks Ended |
|
39 Weeks Ended |
|
|
October 28, 2017 |
|
October 29, 2016 |
|
October 28, 2017 |
|
October 29, 2016 |
Technology
Brands Adjusted Operating Earnings |
|
|
|
|
|
|
|
|
Technology Brands
operating earnings |
|
$ |
18.0 |
|
|
$ |
23.5 |
|
|
$ |
44.1 |
|
|
$ |
56.2 |
|
Acquisition-related costs |
|
(5.7 |
) |
|
— |
|
|
(5.7 |
) |
|
— |
|
Store
closure costs |
|
(1.1 |
) |
|
— |
|
|
6.2 |
|
|
— |
|
Technology Brands
adjusted operating earnings |
|
$ |
11.2 |
|
|
$ |
23.5 |
|
|
$ |
44.6 |
|
|
$ |
56.2 |
|
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Operating Earnings |
|
|
|
|
|
|
|
|
Operating earnings |
|
$ |
87.6 |
|
|
$ |
98.8 |
|
|
$ |
232.3 |
|
|
$ |
271.1 |
|
Acquisition-related costs |
|
(5.7 |
) |
|
— |
|
|
(5.7 |
) |
|
— |
|
Store
closure costs |
|
(1.1 |
) |
|
— |
|
|
6.2 |
|
|
— |
|
Business
divestitures and other |
|
— |
|
|
— |
|
|
(7.3 |
) |
|
4.1 |
|
Adjusted operating
earnings |
|
$ |
80.8 |
|
|
$ |
98.8 |
|
|
$ |
225.5 |
|
|
$ |
275.2 |
|
|
|
|
|
|
|
|
|
|
Consolidated
Adjusted Net Income |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
59.4 |
|
|
$ |
50.8 |
|
|
$ |
140.6 |
|
|
$ |
144.5 |
|
Acquisition-related costs |
|
(5.7 |
) |
|
— |
|
|
(5.7 |
) |
|
— |
|
Store
closure costs |
|
(1.1 |
) |
|
— |
|
|
6.2 |
|
|
— |
|
Business
divestitures and other |
|
— |
|
|
— |
|
|
(7.3 |
) |
|
4.1 |
|
Tax
effect of non-GAAP adjustments |
|
2.5 |
|
|
— |
|
|
(0.2 |
) |
|
(1.5 |
) |
Adjusted net
income |
|
$ |
55.1 |
|
|
$ |
50.8 |
|
|
$ |
133.6 |
|
|
$ |
147.1 |
|
|
|
|
|
|
|
|
|
|
Adjusted
Earnings Per Share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.54 |
|
|
$ |
0.49 |
|
|
$ |
1.32 |
|
|
$ |
1.42 |
|
Diluted |
|
$ |
0.54 |
|
|
$ |
0.49 |
|
|
$ |
1.32 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
Number of shares used
in adjusted calculation |
|
|
|
|
|
|
|
|
Basic |
|
101.5 |
|
|
103.7 |
|
|
101.4 |
|
|
103.8 |
|
Diluted |
|
101.5 |
|
|
104.0 |
|
|
101.5 |
|
|
104.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contact
Mike Loftus
Vice President, Global Controller and Investor Relations
GameStop Corp.
investorrelations@gamestop.com
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