GameStop Corp. (NYSE: GME), today reported sales
and earnings for the first quarter ended May 4, 2019.
George Sherman, GameStop’s chief executive
officer said, “Since joining GameStop in April, I have been
undertaking a thorough review of the business and working closely
with the team to improve our operational and financial performance,
address the challenges that have impacted our results, and execute
both deliberately and with urgency. We believe we will
transform the business and shape the strategy for the GameStop of
the future. This will be driven by our go-forward leadership
team that is now in place, a multi-year transformation effort
underway, a commitment to focusing on the core elements of our
business that are meaningful to our future, and a disciplined
approach to capital allocation.”
First Quarter ResultsTotal
global sales decreased 13.3% (11.5% in constant currency) to $1.5
billion, resulting in a consolidated comparable store sales
decrease of 10.3% (10.2% in the U.S. and 10.4%
internationally).
- New hardware sales decreased 35.0%,
with an increase in Nintendo Switch sales more than offset by a
decline in Xbox One and PlayStation 4 console sales.
- New software sales decreased 4.3%,
driven by weaker new title launches in the quarter compared to last
year.
- Accessories sales increased 0.6% on
the continued strength of controller sales.
- Pre-owned sales declined 20.3%
reflecting declines in hardware and software.
- Digital receipts decreased 6.7% to
$255.4 million, driven by weaker title launches in the quarter
compared to last year.
- Collectibles sales increased 10.5%
to $157.3 million, with continued growth in both domestic and
international stores.
GameStop’s first quarter GAAP net income was
$6.8 million, or $0.07 per diluted share, compared to net income of
$28.2 million, or $0.28 per diluted share, in the prior-year
quarter, which included the Spring Mobile business.
GameStop's net income from continuing operations
for the first quarter was $7.5 million or $0.07 per diluted share,
compared to net income from continuing operations of $20.4 million,
or $0.20 per diluted share, in the prior-year quarter. First
quarter fiscal 2018 net income included severance and other charges
of $11.2 million ($9.7 million net of taxes). First quarter
fiscal 2018 adjusted net income from continuing operations was
$30.1 million or $0.30 per diluted share.
A reconciliation of non-GAAP results, including
adjusted net income from continuing operations, operating earnings
from continuing operations and total operating earnings, to its
closest GAAP measure is included with this release (Schedule
III).
Capital Allocation UpdateOn
June 3, 2019, GameStop’s board of directors elected to eliminate
the company’s quarterly dividend, effective immediately, in an
effort to strengthen the company’s balance sheet and provide
increased financial flexibility and optionality. Eliminating
the company’s quarterly common stock dividend will preserve
approximately $157 million in cash annually, based on the amount of
dividends paid in 2018, and enable the company to further reduce
its outstanding debt and provide flexibility to drive value
creation for shareholders. As of June 3, 2019, the company
has reduced the total amount outstanding on its 2021 unsecured
notes by approximately $39 million, leaving $436 million
outstanding.
Dan DeMatteo, GameStop’s executive chairman
said, “With our operating profit improvement initiative well
underway, we are focused on executing on the significant
opportunities available to us to transform GameStop for the
future. The board is confident that redirecting capital
towards debt reduction and transformation initiatives will create
additional shareholder value over the long-term.”
2019 OutlookAs previously
announced on April 2, 2019, GameStop is currently implementing a
cost-savings and operating profit improvement initiative designed
to strengthen the organization for the future and support long-term
improved financial performance and profitability. These
initiatives, which include supply chain efficiencies, operational
improvements, expense savings and pricing and promotion
optimization, commenced during the first fiscal quarter of
2019. The company remains on track to achieve annualized
operating profit improvements of approximately $100
million.
The company is providing full year sales, tax
and capital expenditure guidance as follows:
FY 2019 Total Sales (calculated using sales from
continuing operations) |
-5% to -10% |
|
|
FY 2019 Comparable Store Sales |
-5% to -10% |
|
|
FY 2019 Adjusted (Non-GAAP) Income Tax Rate |
Approximately 27% |
|
|
FY 2019 Capital Expenditures |
$100 million to $110 million |
|
|
Conference Call InformationA
conference call with GameStop Corp.’s management is scheduled for
June 4, 2019 at 5:00 p.m. ET to discuss the company’s financial
results. The phone number for the call is 800-458-4121 and the
confirmation code is 2037220. 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., a
Fortune 500 company headquartered in Grapevine, Texas, is a
global, multichannel video game and consumer electronics
retailer. GameStop operates over 5,700 stores across 14
countries. 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 Measures and Other
MetricsAs 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 and constant
currency. We believe these non-GAAP financial measures provide
useful information to investors in evaluating our core operating
performance. Adjusted operating earnings and adjusted net income
exclude the effect of items such as asset impairments, store
closure costs, severance, non-operating tax charges, as well as
acquisition and divestiture costs. 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 financial 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. Additionally, GameStop uses
“digital receipts” as an operating metric and defines it as the
retail value paid by the customer for digital content sold
individually or bundled with non-digital products and sales of
subscriptions to our Game Informer magazine in digital
form. The vast majority of our digital receipts come from digital
products that are sold individually rather than bundled with other
products. Under GAAP, we recognize the sale of these digital
products on a net basis, whereby the commissions earned are
recorded to revenue rather than the full retail price paid by the
customer. We believe this operating metric is useful in
understanding the size and performance of our digital business in
comparison to measures of the overall digital industry revenues and
our other video game product categories.
Safe HarborThis 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. Such statements include without limitation those about
the Company’s expectations for fiscal 2019, 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, capital allocation,
profit improvement and cost-savings initiatives, and expected
fiscal 2019 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 from those reflected
or described in the forward-looking statements: the uncertain
impact, effects and results of pursuit of operating, strategic,
financial and structural alternatives; volatility in capital and
credit markets, including changes that reduce availability, and
increase costs, of capital and credit; our inability to obtain
sufficient quantities of product to meet consumer demand; 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; 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; changes in
consumer preferences and economic conditions; increased operating
costs, including wages; cyber security events and related costs;
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 2019. 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 2, 2019
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.
GameStop Corp.Condensed
Consolidated Statements of Operations(in millions,
except per share data)(unaudited)
|
|
13 weeks ended May 4,
2019 |
|
13 weeks ended May 5,
2018 |
Net sales |
|
$ |
1,547.7 |
|
|
$ |
1,785.8 |
|
Cost of sales |
|
1,076.5 |
|
|
1,254.7 |
|
Gross profit |
|
471.2 |
|
|
531.1 |
|
Selling, general and
administrative expenses |
|
430.6 |
|
|
456.1 |
|
Depreciation and
amortization |
|
23.1 |
|
|
28.5 |
|
Operating earnings |
|
17.5 |
|
|
46.5 |
|
Interest expense, net |
|
7.7 |
|
|
13.7 |
|
Earnings from continuing operations before income tax expense |
|
9.8 |
|
|
32.8 |
|
Income tax expense |
|
2.3 |
|
|
12.4 |
|
Net income from continuing operations |
|
7.5 |
|
|
20.4 |
|
(Loss) income from discontinued operations, net of tax |
|
(0.7 |
) |
|
7.8 |
|
Net income |
|
$ |
6.8 |
|
|
$ |
28.2 |
|
|
|
|
|
|
Basic earnings (loss) per
share: |
|
|
|
|
Continuing operations |
|
$ |
0.07 |
|
|
$ |
0.20 |
|
Discontinued operations |
|
(0.01 |
) |
|
0.08 |
|
Basic earnings per share |
|
$ |
0.07 |
|
|
$ |
0.28 |
|
|
|
|
|
|
Diluted earnings (loss) per
share: |
|
|
|
|
Continuing operations |
|
$ |
0.07 |
|
|
$ |
0.20 |
|
Discontinued operations |
|
(0.01 |
) |
|
0.08 |
|
Diluted earnings per
share |
|
$ |
0.07 |
|
|
$ |
0.28 |
|
|
|
|
|
|
Dividends per common
share |
|
$ |
0.38 |
|
|
$ |
0.38 |
|
|
|
|
|
|
Weighted-average common shares
outstanding: |
|
|
|
|
Basic |
|
102.4 |
|
|
101.8 |
|
Diluted |
|
102.5 |
|
|
102.0 |
|
|
|
|
|
|
Percentage of Net Sales: |
|
|
|
|
|
|
|
|
|
Net sales |
|
100.0 |
% |
|
100.0 |
% |
Cost of sales |
|
69.6 |
% |
|
70.3 |
% |
Gross profit |
|
30.4 |
% |
|
29.7 |
% |
Selling, general and
administrative expenses |
|
27.8 |
% |
|
25.5 |
% |
Depreciation and
amortization |
|
1.5 |
% |
|
1.6 |
% |
Operating earnings |
|
1.1 |
% |
|
2.6 |
% |
Interest expense, net |
|
0.5 |
% |
|
0.8 |
% |
Earnings from continuing operations before income tax expense |
|
0.6 |
% |
|
1.8 |
% |
Income tax expense |
|
0.1 |
% |
|
0.7 |
% |
Net income from continuing
operations |
|
0.5 |
% |
|
1.1 |
% |
(Loss) income from
discontinued operations, net of tax |
|
(0.1 |
)% |
|
0.5 |
% |
Net income |
|
0.4 |
% |
|
1.6 |
% |
GameStop Corp.Condensed
Consolidated Balance Sheets(in
millions)(unaudited)
|
|
May 4, 2019 |
|
May 5, 2018 |
ASSETS: |
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
543.2 |
|
|
$ |
242.1 |
|
Receivables, net |
|
126.0 |
|
|
104.5 |
|
Merchandise inventories, net |
|
1,149.1 |
|
|
1,184.5 |
|
Prepaid expenses and other current assets |
|
101.8 |
|
|
133.1 |
|
Assets held for sale |
|
— |
|
|
663.1 |
|
Total current assets |
|
1,920.1 |
|
|
2,327.3 |
|
Property and equipment,
net |
|
313.3 |
|
|
333.5 |
|
Operating lease right-of-use
assets |
|
807.0 |
|
|
— |
|
Goodwill |
|
363.9 |
|
|
1,342.3 |
|
Other noncurrent assets |
|
229.0 |
|
|
305.3 |
|
Total assets |
|
$ |
3,633.3 |
|
|
$ |
4,308.4 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
458.4 |
|
|
$ |
547.8 |
|
Accrued and other current liabilities |
|
588.9 |
|
|
646.2 |
|
Current portion of operating lease liabilities |
|
250.0 |
|
|
— |
|
Liabilities held for sale |
|
— |
|
|
35.6 |
|
Total current liabilities |
|
1,297.3 |
|
|
1,229.6 |
|
Long-term debt, net |
|
468.9 |
|
|
818.6 |
|
Operating lease
liabilities |
|
552.6 |
|
|
— |
|
Other long-term
liabilities |
|
22.8 |
|
|
76.7 |
|
Total liabilities |
|
2,341.6 |
|
|
2,124.9 |
|
Stockholders’ equity |
|
1,291.7 |
|
|
2,183.5 |
|
Total liabilities and
stockholders’ equity |
|
$ |
3,633.3 |
|
|
$ |
4,308.4 |
|
GameStop Corp.
Schedule ISales
Mix(unaudited)
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
May 4, 2019 |
|
May 5, 2018 |
|
|
Net |
|
Percent |
|
Net |
|
Percent |
Net Sales (in millions): |
|
Sales |
|
of Total |
|
Sales |
|
of Total |
|
|
|
|
|
|
|
|
|
New video game hardware (1) |
|
$ |
233.5 |
|
|
15.1 |
% |
|
$ |
359.2 |
|
|
20.1 |
% |
New video game software |
|
446.4 |
|
|
28.8 |
% |
|
466.7 |
|
|
26.1 |
% |
Pre-owned and value video game
products |
|
395.3 |
|
|
25.5 |
% |
|
495.7 |
|
|
27.8 |
% |
Video game accessories |
|
200.2 |
|
|
12.9 |
% |
|
199.1 |
|
|
11.1 |
% |
Digital |
|
38.1 |
|
|
2.5 |
% |
|
43.0 |
|
|
2.4 |
% |
Collectibles |
|
157.3 |
|
|
10.2 |
% |
|
142.4 |
|
|
8.0 |
% |
Other (2) |
|
76.9 |
|
|
5.0 |
% |
|
79.7 |
|
|
4.5 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,547.7 |
|
|
100.0 |
% |
|
$ |
1,785.8 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
(1) Includes
sales of hardware bundles, in which physical hardware and digital
or physical software are sold together as a single SKU.(2)
Includes mobile and consumer electronics sold through our Simply
Mac branded stores. Also includes sales of PC entertainment
software, interactive game figures, strategy guides, mobile and
consumer electronics sold through our video game brands, and
revenues from PowerUp Pro loyalty members receiving Game
Informer magazine in print form. |
Schedule IIGross Profit
Mix(unaudited)
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
May 4, 2019 |
|
May 5, 2018 |
Gross Profit (in
millions): |
|
GrossProfit |
|
GrossProfitPercent |
|
Gross Profit |
|
Gross Profit Percent |
|
|
|
|
|
|
|
|
|
New video game hardware (1) |
|
$ |
22.5 |
|
|
9.6 |
% |
|
$ |
35.2 |
|
|
9.8 |
% |
New video game software |
|
94.4 |
|
|
21.1 |
% |
|
98.8 |
|
|
21.2 |
% |
Pre-owned and value video game
products |
|
173.9 |
|
|
44.0 |
% |
|
220.6 |
|
|
44.5 |
% |
Video game accessories |
|
72.5 |
|
|
36.2 |
% |
|
67.5 |
|
|
33.9 |
% |
Digital |
|
34.8 |
|
|
91.3 |
% |
|
38.2 |
|
|
88.8 |
% |
Collectibles |
|
51.4 |
|
|
32.7 |
% |
|
45.8 |
|
|
32.2 |
% |
Other (2) |
|
21.7 |
|
|
28.2 |
% |
|
25.0 |
|
|
31.4 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
471.2 |
|
|
30.4 |
% |
|
$ |
531.1 |
|
|
29.7 |
% |
|
|
|
|
|
|
|
|
|
(1) Includes
sales of hardware bundles, in which physical hardware and digital
or physical software are sold together as a single SKU.(2)
Includes mobile and consumer electronics sold through our Simply
Mac branded stores. Also includes sales of PC entertainment
software, interactive game figures, strategy guides, mobile and
consumer electronics sold through our video game brands, and
revenues from PowerUp Pro loyalty members receiving Game
Informer magazine in print form. |
|
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 Generally
Accepted Accounting Principles ("GAAP") to its adjusted operating
earnings, net income and earnings per share.
GameStop Corp.Schedule
III(in millions, except per share
data)(unaudited)
|
|
13 Weeks Ended |
|
13 Weeks Ended |
|
|
May 4, 2019 |
|
May 5, 2018 |
Adjusted
Operating Earnings |
Operating earnings |
|
$ |
17.5 |
|
|
$ |
46.5 |
|
Severance and other |
|
— |
|
|
11.2 |
|
Adjusted operating
earnings |
|
$ |
17.5 |
|
|
$ |
57.7 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net
Income |
|
|
|
|
Net income |
|
$ |
6.8 |
|
|
$ |
28.2 |
|
Loss (income) from discontinued operations |
|
0.7 |
|
|
(7.8 |
) |
Net income from continuing
operations |
|
$ |
7.5 |
|
|
$ |
20.4 |
|
Severance and other |
|
— |
|
|
11.2 |
|
Tax effect of non-GAAP adjustments |
|
— |
|
|
(1.5 |
) |
Adjusted net income |
|
$ |
7.5 |
|
|
$ |
30.1 |
|
|
|
|
|
|
Adjusted earnings per
share |
|
|
|
|
Basic |
|
$ |
0.07 |
|
|
$ |
0.30 |
|
Diluted |
|
$ |
0.07 |
|
|
$ |
0.30 |
|
|
|
|
|
|
Number of shares used in
adjusted calculation |
|
|
|
|
Basic |
|
102.4 |
|
|
101.8 |
|
Diluted |
|
102.5 |
|
|
102.0 |
|
Contact
GameStop Corp. Investor Relations
(817) 424-2001
investorrelations@gamestop.com
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