GameStop Corp. (NYSE: GME) (the “Company”) today issued a letter to
stockholders highlighting the significant progress that it has made
advancing GameStop Reboot, its business transformation plan, and
the critical importance of having a stable, skilled, and informed
Board for continued diligent execution of the plan and the
Company’s long-term success. The letter notes that Hestia Capital
Partners, LP and Permit Capital Enterprise Fund, LP’s (“Hestia
Capital” and “Permit Capital,” or collectively, the “Dissident
Stockholders”) campaign distracts from leadership’s ability to
continue to execute GameStop Reboot and deliver returns to all
stockholders. The letter urges stockholders to use the
BLUE proxy card to vote “
FOR ALL”
of GameStop’s 10 highly qualified director nominees in connection
with the Company’s upcoming Annual Meeting of Stockholders (the
“Annual Meeting”) to be held at 8:00 a.m. CT on June 12, 2020.
The full text of the letter from Kathy Vrabeck, the Lead
Independent Director to the Company’s stockholders follows:
May 18, 2020
Dear GameStop Stockholders,
As noted in my previous letters, you will face a decision that
poses significant implications for the future of our Company at our
2020 Annual Meeting of Stockholders scheduled for June 12, 2020
(the “Annual Meeting”). Hestia Capital Partners, LP and
Permit Capital Enterprise Fund, LP (“Hestia Capital” and “Permit
Capital,” or collectively, the “Dissident Stockholders”) are
running a costly and distracting proxy fight, founded on baseless
claims and significant misrepresentation of facts, in an attempt to
remove two highly qualified independent directors who bring
valuable experience and continuity to the Board.
The Dissident Stockholders’ campaign is unnecessary and
detrimental to GameStop’s long-term success. GameStop’s
comprehensively refreshed management team and Board have already
made significant progress in their efforts to reinvigorate the
Company’s strategic direction and create new opportunities to drive
value for GameStop’s stockholders and have demonstrated their
commitment to delivering value to stockholders by advancing a
carefully considered strategic plan designed to optimize our core
business, while also working to transform our business to position
us for the future of gaming.
Your Board urges you to protect and support this progress by
discarding any White proxy card you may receive from the Dissident
Stockholders and using the BLUE proxy card to vote
“FOR ALL” of GameStop’s 10 director nominees.
Your Board and Management are
the Right Team Executing the Right Plan
The Board and management team appreciate constructive
stockholder feedback intended to help the Company generate
long-term value for ALL stockholders. In their
recent letter, the Dissident Stockholders purport to offer such
feedback, directing GameStop to address its cost structure and
increase liquidity, align management’s compensation with
performance, and pursue an innovative strategic plan.
However, their solution for the problems they assert is simply to
appoint one of the authors of the letter, Hestia Capital’s founder,
Kurtis Wolf, to your Board as a “stockholder representative.”
Notwithstanding the fact that Mr. Wolf’s record suggests he is
incapable of addressing these issues in a manner that creates value
for ALL stockholders, the Dissident Stockholders’
self-serving demand is unsupported by facts. GameStop has already
made significant progress on each of these fronts while executing
its innovative and carefully considered business transformation
strategy, GameStop Reboot. While there is certainly work left to be
done, GameStop’s new management team, appointed last year, is
already delivering quantifiable results executing GameStop Reboot
under the supervision of GameStop’s recently refreshed Board.
This refreshed Board, which possesses the requisite relevant
industry-specific expertise and diverse perspectives (including the
fresh perspectives of our newest Board members and the
institutional memory of our longest-serving Board members), is
critical to the Company’s successful execution of its
transformation plan.
The Board looks forward to continuing to execute GameStop Reboot
and leverage GameStop’s unique position and brand in the video game
industry to further transform the business and enable the Company
to deliver sustained value to all stockholders.
GameStop is Advancing Its
Turnaround Strategic Plan “GameStop Reboot”
On September 10, 2019, GameStop’s leadership outlined a
comprehensive strategy named “GameStop Reboot” to improve the
financial performance of the business and implement a series of
initiatives to create value for stockholders. This compelling new
strategic plan is intended first to optimize and stabilize the
business, directly addressing critical areas of the business, and
next to enable leadership to transform the business and support
long-term success.
The GameStop Reboot plan is anchored on four pillars: (i)
Optimize the Core Business, (ii) Become
the Social / Cultural Hub for Gaming, (iii) Build
a Frictionless Digital Ecosystem, and (iv)
Transform Vendor Partnerships. Since announcing
the strategy in September 2019, the Company has advanced all four
tenets of the strategy through significant, quantifiable progress,
as outlined below.
GameStop’s Reboot Plan is
Delivering Lower Costs and Reduced Debt
GameStop’s execution of the Company’s new strategic plan almost
immediately started delivering tangible results. In
particular, the Board’s effective implementation of GameStop
Reboot’s first tenet has enabled the Company to enhance its cost
containment and pay down its debt.
As the result of the Company’s efforts to Optimize the
Core Business, GameStop has already:
- Exited FY2019 with approximately $500 million in cash after
generating $62.3 million in adjusted operating income, despite a
challenging sales environment;
- Significantly improved its capital structure, enabling the
Company to reduce debt by $401 million and repurchase 38.1 million
shares for $199 million using the proceeds from the sale of
non-core business units;
- Delivered a selling, general and administrative expense
(“SG&A”) reduction of $130.4 million, on an adjusted basis, for
FY2019;*
- Optimized operations by improving inventory, enabling the
Company to reduce inventory by 31% at FY2019 year-end and drive a
160 basis point gross margin expansion, as well as to reduce
Accounts Payable and Other Liabilities by 64%, significantly
enhancing GameStop’s working capital and overall balance sheet
strength; and
- Begun the wind-down of underperforming operations in Denmark,
Finland, Norway and Sweden as part of an optimization plan for the
global store base, de-densifying locations and delivering accretive
product transfer.
* See below for definitions of non-GAAP financial measures
used in this letter, including adjusted SG&A and adjusted
operating income, reconciliations of these non-GAAP financial
measures to their most directly comparable GAAP financial measure,
and information about how our management team uses such non-GAAP
measures and why our management believes such non-GAAP financial
measures provide useful information to investors.
We continue to welcome the Dissident Stockholders to engage with
us constructively to discuss the ongoing execution of our business
transformation plan to reduce SG&A, optimize inventory
management, and optimize operations. If the Dissident Stockholders
were actually willing to engage with us constructively, then they
would realize, like many of our other stockholders have realized,
that the new management team and Board’s actions have enabled us to
begin fiscal 2020 with increased financial flexibility, in spite of
the current global crisis.
GameStop’s Considered,
Balanced Approach to Capital Allocation
Your Board’s disciplined capital allocation strategy has also
positively impacted and protected the value of your investment in
GameStop. The Board is focused on returning excess capital to
stockholders as appropriate, while managing debt levels and
strengthening our balance sheet. Among other actions taken, the
Company:
- Redeemed $350 million unsecured senior notes in early
2019;
- Completed a share repurchase program of approximately 38.1
million shares, at a weighted average cost of $5.21 per share,
generating a return of approximately $200 million to stockholders
throughout 2019; and
- Eliminated the annual dividend in early 2019, saving $155
million annually.
Your Board and management team’s successful capital allocation
decisions in 2019 significantly improved GameStop’s capital
structure. The Company was able to deploy the proceeds from the
sale of non-core business units to reduce debt by $401 million,
enabling GameStop to leverage its market position as the pure-play,
omni-channel leader in gaming, positioning the company for
long-term success. While there is still work ahead, this balanced
and prudent capital allocation strategy has increased GameStop’s
financial flexibility for the future, strengthened its balance
sheet, and provided the Company with sufficient liquidity to
protect all stockholders’ investments.
In contrast, the Dissident Stockholders have not demonstrated
that they are capable of making deliberate long-term capital
allocation decisions in the interests of all stockholders.
Following the Company’s sale of Spring Mobile for $700 million in
February 2019, Hestia Capital sent a letter to your Board
recommending that the Company immediately fund a share buyback
program using virtually all of the proceeds of the sale to buy back
stock. The same letter demanded that the Company de-emphasize
debt reduction, ignoring the Company’s outstanding debt balance of
over $800 million. Your Board judiciously chose not to pursue this
shortsighted and self-interested recommendation and instead took
steps to maximize value for ALL of our
stockholders, which, among other things, has enabled GameStop to
weather the market disruption caused by the COVID-19 pandemic.
Implementing a Visionary &
Innovative Strategic Plan
In addition to Optimizing the Core Business,
our leadership team has already been advancing innovation at the
Company and expanding the boundaries of what a video game retailer
might provide and create by driving the second, third and fourth
key tenets of GameStop Reboot.
- Become Social / Cultural Hub for
Gaming: The Board has worked to embed gaming as a social
and cultural hub across the GameStop platform, testing and
improving existing core assets. Since the announcement of GameStop
Reboot in September 2019, the Board has not only successfully
implemented and tested an experiential products lab in the Tulsa
market, but also deployed new features within the PowerUp loyalty
program, leading to a 280 basis point improvement in the
transaction conversion rate (including PowerUp
enrollment).
- Build a Frictionless Digital Ecosystem: By
building compelling digital capabilities across our omnichannel
platform, including the recent relaunch of an improved
GameStop.com, your Board is redefining our relationship with our
customers. GameStop has already expanded omnichannel features such
as “Buy Online, Pick Up In Store,” which directly enabled
significant sales plan recapture in U.S. stores that remained open
for curbside pick-up during the COVID-19 pandemic. We also
appointed a Chief Digital Officer to accelerate additional digital
transformation activities.
- Delivered omni-channel digital capabilities that have directly
led to a 90%+ retention of store sales plans in the two-thirds of
our stores that are conducting curbside operations during a time
when customer store access was closed in response to
pandemic-related safety measures.i
- Transform Vendor Partnerships: GameStop has
made significant progress unlocking additional high-margin revenue
streams as it works to optimize the lifetime value of every
customer. Accordingly, GameStop has expanded product penetration in
PC gaming and private label product categories, optimized its
supply chain and vendor base to leverage scale and new offerings,
and begun testing and advancing digital revenue sharing with key
partners.
Compensation Aligned with
Corporate Strategy and Stockholder Interests
The Dissident Stockholders have also recommended that
stockholders vote against our “Say-on-Pay” proposal; however, their
recommendation is completely unsupported. The Compensation
Committee of GameStop’s Board structures the Company’s executive
compensation program to incentivize management to achieve
profitability and high levels of performance with strong
pay-for-performance alignment, in order to generate sustainable
value for GameStop stockholders, and evaluates the program
holistically as part of the Board’s commitment to maintaining
strong corporate governance. Moreover, the Compensation Committee
ensures that the structure of executive pay is correlated with the
long-term objectives of GameStop Reboot and strongly aligns the
interests of our management team with our stockholders.
Our stockholders have consistently demonstrated strong support
for our compensation program. Over GameStop’s past three
annual meetings, our “Say-on-Pay” proposal has averaged over 90%
stockholder support. Institutional Shareholder Services (“ISS”), a
leading proxy advisory firm, noted last year that the total pay for
GameStop’s CEO was roughly one-third the median pay of our peers’
CEOs, determined that pay and performance at GameStop were
well-aligned and did not identify any significant compensation
concerns. In addition, in our engagements with our stockholders
representing 87% of GameStop’s outstanding common stock this past
year, our stockholders consistently expressed their approval of
GameStop’s executive compensation program.
The Choice is Clear- Please
VOTE on the BLUE Proxy Card
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE “FOR ALL” OF YOUR BOARD’S 10 NOMINEES USING THE ENCLOSED BLUE
PROXY CARD.
Vote your shares FOR ALL of the 10 director
nominees proposed by your Board, via the Internet or telephone or
by mail by promptly marking, signing and dating the enclosed
BLUE proxy card and returning it in the enclosed
postage-paid envelope.
Please do not return or otherwise vote any
White proxy card sent to you by the Dissident Stockholders.
No matter how many shares you own, your vote is extremely
important. Please act today and make your voice heard
regarding the future of the Company by supporting your Board and
management team.
We believe that GameStop’s highly qualified and experienced
Board of Directors is best positioned to oversee the continued
successful execution of GameStop’s Reboot plan and deliver
substantial value to ALL of our stockholders. On
behalf of the Board of Directors and our management team, thank you
for your continued support and your investment in GameStop.
Sincerely,
Kathy Vrabeck, Lead Independent Director
Forward-Looking
Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are based upon management’s current beliefs,
views, estimates and expectations, including as to the Company’s
industry, business strategy, goals and expectations concerning its
market position, future operations, margins, profitability, capital
expenditures, liquidity and capital resources and other financial
and operating information, including expectations as to future
operating profit improvement. Such statements include without
limitation those about the Company’s expectations for fiscal 2020,
future financial and operating results, projections, expectations
and other statements that are not historical facts. All statements
regarding targeted and expected benefits of our transformation, the
GameStop Reboot plan, capital allocation, profit improvement and
cost-savings initiatives, and expected fiscal 2020 results, are
forward-looking statements. Forward-looking statements are
subject to significant risks and uncertainties and actual
developments, business decisions and results may differ materially
from those reflected or described in the forward-looking
statements. The following factors, among others, could cause
actual results to differ materially from those reflected or
described in the forward-looking statements: the uncertain impact,
effects and results of pursuit of operating, strategic, financial
and structural initiatives, including the GameStop Reboot strategic
plan; volatility in capital and credit markets, including changes
that reduce availability, and increase costs, of capital and
credit; the impact of the COVID-19 outbreak on capital markets and
our business; our inability to obtain sufficient quantities of
product to meet consumer demand, including due to supply chain
disruptions on account of trade restrictions, political
instability, COVID-19, labor disturbances and product recalls; the
timing of release and consumer demand for new and pre-owned
products; our ability to continue to expand, and successfully open
and operate new stores for our collectibles business; risks
associated with achievement of anticipated financial and operating
results from acquisitions; our ability to sustain and grow our
console digital video game sales; our ability to establish and
profitably maintain the appropriate mix of digital and physical
presence in the markets we serve; our ability to assess and
implement technologies in support of our omnichannel capabilities;
the impact of goodwill and intangible asset impairments; cost
reduction initiatives, including store closing costs; risks related
to changes in, and our continued retention of, executives and other
key personnel and our ability to attract and retain qualified
employees in all areas of the organization; changes in consumer
preferences and economic conditions; increased operating costs,
including wages; disruptions to our information technology systems
including but not limited to security breaches of systems
protecting consumer and employee information or other types of
cybercrimes or cybersecurity attacks; risks associated with
international operations; increased competition and changing
technology in the video game industry; 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; our effective tax rate and the factors affecting our
effective tax rate, including changes in international, federal or
state tax, trade and other laws and regulations; the costs and
outcomes of legal proceedings and tax audits; our use of proceeds
from the sale of our Spring Mobile business; and unexpected changes
in the assumptions underlying our outlook for fiscal 2020.
Additional factors that could cause our results to differ
materially from those reflected or described in the forward-looking
statements can be found in GameStop's Annual Report on Form 10-K
for the fiscal year ended February 1, 2020 (the “10-K”) filed with
the SEC and available at the SEC's Internet site at
http://www.sec.gov or http://investor.GameStop.com. Forward-looking
statements contained in this press release speak only as of the
date of this release. The Company undertakes no obligation to
publicly update any forward-looking statement, whether as a result
of new information, future developments or otherwise, except as may
be required by any applicable securities laws.
Additional Information
On April 28, 2020, the Company filed a definitive proxy
statement on Schedule 14A and form of
associated BLUE proxy card with the SEC
in connection with its solicitation of proxies for its 2020 Annual
Meeting of Stockholders (the “Annual Meeting”). The definitive
proxy statement is also being mailed to the Company’s stockholders
beginning on or about April 28, 2020. INVESTORS
AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE
DEFINITIVE PROXY STATEMENT (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS
THERETO) AND ACCOMPANYING BLUE PROXY CARD AS THEY CONTAIN IMPORTANT
INFORMATION. Investors and security
holders may obtain free copies of the proxy statement (including
any amendments or supplements thereto) and other documents filed
with the SEC through the website maintained by the SEC
at www.sec.gov. Copies will also be available at no charge in
the “Investor Relations” section of the Company’s
website, http://news.gamestop.com/home.
Participants in the Solicitation
The directors, executive officers and certain other members of
management and employees of the Company may be deemed
“participants” in the solicitation of proxies from stockholders in
connection with the matters to be considered at the Annual Meeting.
Information regarding the persons who may, under the rules of the
SEC, be considered participants in the solicitation of the
Company’s stockholders in connection with the Annual Meeting can be
found in the definitive proxy statement filed on April 28, 2020 and
the 10-K, each of which is available at the SEC's Internet site at
http://www.sec.gov or http://investor.GameStop.com.
Media Contact:Phil Denning, ICR Inc. (646)
677-1258 Phil.Denning@icrinc.com
Investor Contact:GameStop Corp. Investor
Relations (817) 424-2001 investorrelations@gamestop.com
If you have questions about how to vote your shares or need
additional copies of the proxy materials, please call the firm
assisting us with the solicitation of proxies:INNISFREE
M&A INCORPORATEDStockholders may call:1(877)
750-9501 (toll-free from the U.S. and Canada),
or+1(412) 232-3651 (from other
countries)IMPORTANT NOTE: Please simply discard any White
proxy cards sent to you by Hestia Capital Partners LP. If you have
already voted using a White proxy card, you can change your vote by
using the enclosed BLUE proxy card to vote by
telephone, Internet or by mail.Only your latest-dated vote will
count. |
About GameStop
GameStop Corp., a Fortune 500 company headquartered in
Grapevine, Texas, is the world’s largest video game retailer,
operates approximately 5,500 stores across 14 countries, and offers
the best selection of new and pre-owned video gaming consoles,
accessories and video game titles, in both physical and digital
formats. GameStop also offers fans a wide variety of POP!
vinyl figures, collectibles, board games and more. Through
GameStop’s unique buy-sell-trade program, gamers can trade in video
game consoles, games, and accessories, as well as consumer
electronics for cash or in-store credit. The company's
consumer product network also includes www.gamestop.com and Game
Informer® magazine, the world's leading print and digital video
game publication. 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 Reconciliation
As a supplement to our financial results presented in accordance
with U.S. generally accepted accounting principles (GAAP), we may
use certain non-GAAP measures, such as adjusted selling, general
and administrative expenses (“SG&A”) and adjusted operating
income. We believe these non-GAAP financial measures provide useful
information to investors in evaluating our core operating
performance. The following table reconciles the Company’s adjusted
SG&A and adjusted operating income to its nearest GAAP measure
(in millions):
|
|
|
|
Fiscal Year |
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted SG&A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A |
|
$ |
1,922.7 |
|
|
|
|
$ |
1,994.2 |
|
Transformation costs |
|
|
(37.9 |
) |
|
|
|
|
— |
|
|
|
|
|
Business divestitures |
|
|
(10.8 |
) |
|
|
|
|
— |
|
|
|
|
|
Severance and other |
|
|
(27.6 |
) |
|
|
|
|
(17.4 |
) |
|
|
|
|
Adjusted SG&A |
|
$ |
1,846.4 |
|
|
|
|
$ |
1,976.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income |
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss) |
|
$ |
(399.6 |
) |
|
|
|
$ |
(702.0 |
) |
|
|
|
|
Transformation costs |
|
|
37.9 |
|
|
|
|
|
— |
|
|
|
|
|
Business divestitures |
|
|
10.8 |
|
|
|
|
|
— |
|
|
|
|
|
Goodwill impairments |
|
|
363.9 |
|
|
|
|
|
970.7 |
|
|
|
|
|
Property, equipment and other asset impairments |
|
|
19.4 |
|
|
|
|
|
2.1 |
|
|
|
|
|
Intangible impairments |
|
|
2.3 |
|
|
|
|
|
43.1 |
|
|
|
|
|
Severance and other |
|
|
27.6 |
|
|
|
|
|
17.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating income |
|
$ |
62.3 |
|
|
|
|
$ |
331.3 |
|
|
|
|
|
|
|
|
|
|
|
|
__________________i See the Company’s Press Release dated April
21, 2020, “GameStop Provides Business Update Related to
COVID-19.”
The GameStop Board Recommends
StockholdersVote on the BLUE Proxy Card, via the internet
or telephone or by mail by promptly Signing and Dating the enclosed
BLUE Proxy Card and Returning it in the enclosed postage-paid
envelope
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