GameStop Reports First Quarter Results
First Quarter
Comparable Store Sales Declined 17% Excluding Stores Closed Due to COVID-19 with Majority of
First Quarter E-commerce Sales Increased 519%; Increased over 1,000% During the Six Weeks Following Store Closures Due to COVID-19
Ends First Quarter with
First Quarter Results:
As previously announced, on
(See reconciliation table of GAAP results to adjusted results in Schedule II of this press release.)
- Total global comparable store sales decreased 17% excluding stores that were closed during the first quarter as a result of the COVID-19 pandemic. After including the impact of stores that were closed for the majority of the quarter due to the COVID-19 pandemic, comparable stores sales decreased by approximately 30%.
- Global E-commerce sales increased 519% compared to the prior year first quarter, despite having severely limited distribution operations across international businesses.
- Gross margin declined 270 bps from the prior year first quarter, driven by the increased mix of hardware compared to the prior year first quarter.
- SG&A was
$386.5 million , down$67.2 million or 15% compared to$453.7 million in the prior year first quarter which includes$18.5 million in incremental wages paid to hourly associates to help offset lost wages due to store closures from the COVID-19 pandemic, and approximately$3.0 million in incremental costs associated with safety materials and equipment to ensure the safety of customers and associates. - Adjusted SG&A was
$381.2 million , a reduction of$72.5 million , or 16% from the prior year first quarter. - Operating loss of
($108.0) million compared to operating earnings of$17.5 million in the prior year first quarter. - Adjusted operating loss of
($98.8) million compared to adjusted operating income of$17.5 million in the prior year first quarter. - Net loss of
($165.7) million , or ($2.57 ) per diluted share, including a$53.0 million non-cash tax charge associated with the valuation allowance against deferred tax assets, an additional$18.5 million in incremental wages paid to our hourly associates to help offset lost wages due to store closures from the COVID-19 pandemic, and approximately$3.0 million in incremental costs associated with safety materials and equipment to ensure the safety of our customers and associates, compared to net income of$6.8 million , or earnings per share of$0.07 per diluted share in the prior year first quarter. - Adjusted EBITDA of
($75.5) million compared to$42.7 million in the prior year first quarter. - Adjusted net loss of
($103.9) million or ($1.61 ) per diluted share, compared to adjusted net income of$7.5 million , or$0.07 per diluted share in the prior year first quarter.
Capital Allocation and Liquidity Update
As of
As of
Store Operations Update
The Company continues to phase the reopening of its stores across all operating countries where restrictions related to the global pandemic have been lifted, and according to the mandates provided by country, state and local officials, including the implementation of strict sanitary processes and social distancing measures. As a result, at the end of
Subsequently, given the recent social unrest experienced in various cities across
Progress on 2020 Strategic Initiatives:
The Company continues to focus on advancing its 2020 strategic initiatives, in addition to adhering to its previously announced actions in response to COVID-19 including:
- A temporary base salary reduction of 50% for
George Sherman , Chief Executive Officer, 30% forJim Bell , Chief Financial Officer and the remainder of the executive leadership team. - Temporarily reduced cash compensation for Board of Directors by 50%.
- Other actions include:
- Beginning
April 26 th, certain other employees across the Company’s worldwide operating units received temporarily reduced pay of between 10% and 30%. - Offered certain of the Company’s corporate support staff the option of either a temporary furlough or reduced workweek / reduced pay program.
- Reduced inventory receipts to match demand with a focus on key hardware, software and accessories products.
- Lowered capital spending to focus on mandatory maintenance or near-term high value strategic projects.
- Due to the impact of governmental regulations and certain landlord decisions to close properties, the Company did not make a portion of certain lease payments and remains in discussions with its landlords regarding ongoing rent payments, including potential abatement, deferral and / or restructuring of future rents during this period of COVID-19 related closure.
- Beginning
The Company continues to focus on driving the objectives of its four strategic priorities, however, it has made particularly strong progress on two of these four initiatives including efforts to optimize the core business and build a frictionless digital ecosystem in the first quarter.
Optimize the core business by improving efficiency and effectiveness across the organization.
- Further optimize inventory efficiency and working capital leading to a 43% reduction in inventory at quarter end and a 54% decline in accounts payable while maintaining strong cash and liquidity; and
- Increased the flexibility within its operations to maximize safe and effective omni-channel fulfillment.
Build a frictionless digital ecosystem to reach
- Improved fulfillment capabilities leading to the recapture of sales through stores open for limited curbside pickup during the quarter, despite being temporarily closed to customer traffic due to COVID-19; and
- Delivered a 519% increase in global E-commerce sales during the quarter.
2020 Outlook (52-weeks ending
The Company is closely monitoring the dynamic situation around COVID-19 and potential impacts on its business. Despite an initial surge in demand in its product offerings when the global outbreak began, given the uncertainty around the evolving situation, the Company has suspended guidance at this time.
The Company continues to focus on efforts that position it to manage through this unprecedented time, such as maintaining its balance sheet strength, prioritizing the allocation of resources to areas of the business that produce strong cash flow, reducing expenses across the business and intensifying inventory discipline. Given these efforts and the expected trajectory of the business, the Company anticipates it will generate positive adjusted EBITDA for fiscal 2020.
The Company noted that fiscal May comparable store sales declined approximately 4%, as heightened demand for its product offerings was tempered by the expected decline in sales as a result of the final stage of a hardware console cycle and the shift of several key new software titles to later in the year. Importantly, the strength of E-Commerce sales continued in May, with global E-Commerce growth in fiscal May up over 1400%.
Conference Call Information
A conference call with GameStop Corp.’s management is scheduled for
About
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 Metrics
As a supplement to our financial results presented in accordance with
Cautionary Statement Regarding Forward-Looking Statements - Safe Harbor
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 financial results, expectations and other statements that are not historical facts. 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: macroeconomic pressures, including the effects of COVID-19 on consumer spending; the impact of the COVID-19 pandemic on the Company’s business and financial results; the economic conditions in the
Condensed Consolidated Statements of Operations (in millions, except per share data) (unaudited) |
||||||||
| 13 weeks ended |
13 weeks ended |
|||||||
| Net sales | $ | 1,021.0 | $ | 1,547.7 | ||||
| Cost of sales | 738.6 | 1,076.5 | ||||||
| Gross profit | 282.4 | 471.2 | ||||||
| Selling, general and administrative expenses | 386.5 | 453.7 | ||||||
| Asset impairments | 3.9 | — | ||||||
| Operating (loss) earnings | (108.0 | ) | 17.5 | |||||
| Interest expense, net | 6.7 | 7.7 | ||||||
| (Loss) income from continuing operations before income taxes | (114.7 | ) | 9.8 | |||||
| Income tax expense | 50.4 | 2.3 | ||||||
| Net (loss) income from continuing operations | (165.1 | ) | 7.5 | |||||
| Loss from discontinued operations, net of tax | (0.6 | ) | (0.7 | ) | ||||
| Net (loss) income | $ | (165.7 | ) | $ | 6.8 | |||
| Basic (loss) earnings per share: | ||||||||
| Continuing operations | $ | (2.56 | ) | $ | 0.07 | |||
| Discontinued operations | (0.01 | ) | (0.01 | ) | ||||
| Basic (loss) earnings per share | $ | (2.57 | ) | $ | 0.07 | |||
| Diluted (loss) earnings per share: | ||||||||
| Continuing operations | $ | (2.56 | ) | $ | 0.07 | |||
| Discontinued operations | (0.01 | ) | (0.01 | ) | ||||
| Diluted (loss) earnings per share | $ | (2.57 | ) | $ | 0.07 | |||
| Dividends per common share | $ | — | $ | 0.38 | ||||
| Weighted-average common shares outstanding: | ||||||||
| Basic | 64.5 | 102.4 | ||||||
| Diluted | 64.5 | 102.5 | ||||||
| Percentage of |
||||||||
| Net sales | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 72.3 | 69.6 | ||||||
| Gross profit | 27.7 | 30.4 | ||||||
| Selling, general and administrative expenses | 37.9 | 29.3 | ||||||
| Asset impairments | 0.4 | — | ||||||
| Operating (loss) earnings | (10.6 | ) | 1.1 | |||||
| Interest expense, net | 0.6 | 0.5 | ||||||
| (Loss) income from continuing operations before income taxes | (11.2 | ) | 0.6 | |||||
| Income tax expense | 5.0 | 0.1 | ||||||
| Net (loss) income from continuing operations | (16.2 | ) | 0.5 | |||||
| Loss from discontinued operations, net of tax | — | (0.1 | ) | |||||
| Net (loss) income | (16.2 | )% | 0.4 | % | ||||
Condensed Consolidated Balance Sheets (in millions) (unaudited) |
||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 570.3 | $ | 543.2 | ||||
| Receivables, net | 86.7 | 126.0 | ||||||
| Merchandise inventories, net | 654.7 | 1,149.1 | ||||||
| Prepaid expenses and other current assets | 99.1 | 101.8 | ||||||
| Assets held for sale | 9.1 | — | ||||||
| Total current assets | 1,419.9 | 1,920.1 | ||||||
| Property and equipment, net | 256.3 | 313.3 | ||||||
| Operating lease right-of-use assets | 706.2 | 807.0 | ||||||
| Deferred income taxes | 29.2 | 147.3 | ||||||
| — | 363.9 | |||||||
| Other noncurrent assets | 57.4 | 81.7 | ||||||
| Total assets | $ | 2,469.0 | $ | 3,633.3 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 212.1 | $ | 458.4 | ||||
| Accrued liabilities and other current liabilities | 506.0 | 588.9 | ||||||
| Current portion of operating lease liabilities | 249.4 | 250.0 | ||||||
| Current portion of long-term debt, net | 417.2 | — | ||||||
| Borrowings under revolving line of credit | 135.0 | — | ||||||
| Total current liabilities | 1,519.7 | 1,297.3 | ||||||
| Long-term debt, net | — | 468.9 | ||||||
| Operating lease liabilities | 493.9 | 552.6 | ||||||
| Other long-term liabilities | 20.4 | 22.8 | ||||||
| Total liabilities | 2,034.0 | 2,341.6 | ||||||
| Total stockholders’ equity | 435.0 | 1,291.7 | ||||||
| Total liabilities and stockholders’ equity | $ | 2,469.0 | $ | 3,633.3 | ||||
| Schedule I Sales Mix (unaudited) |
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| 13 Weeks Ended | 13 Weeks Ended | |||||||||||||
| Net | Percent | Net | Percent | |||||||||||
| Sales | of Total | Sales | of Total | |||||||||||
| Hardware and accessories (1) | $ | 513.1 | 50.3 | % | $ | 656.5 | 42.4 | % | ||||||
| Software (2) | 417.0 | 40.8 | 733.1 | 47.4 | ||||||||||
| Collectibles | 90.9 | 8.9 | 158.1 | 10.2 | ||||||||||
| Total | $ | 1,021.0 | 100.0 | % | $ | 1,547.7 | 100.0 | % | ||||||
| (1) Includes sales of new and pre-owned hardware, accessories, hardware bundles in which hardware and digital or physical software are sold together in a single SKU, interactive game figures, strategy guides, mobile and consumer electronics, and the operations of our Simply Mac stores, which were sold in |
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| (2) Includes sales of new and pre-owned video game software, digital software and PC entertainment software. | ||||||||||||||
Schedule II
(in millions, except per share data)
(unaudited)
Non-GAAP results
The following tables reconcile the Company's selling, general and administrative expenses ("SG&A"), operating earnings, net (loss) 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 SG&A, adjusted operating earnings, adjusted net (loss) income, adjusted EBITDA and adjusted earnings per share. The diluted weighted-average shares outstanding used to calculated adjusted earnings per share may differ from GAAP weighted-average shares outstanding. Under GAAP, basic and diluted weighted-average shares outstanding are the same in periods where there is a net loss. The reconciliations below are from continuing operations only.
| 13 Weeks Ended | 13 Weeks Ended | |||||||
| Adjusted SG&A | ||||||||
| SG&A | $ | 386.5 | $ | 453.7 | ||||
| Transformation costs | (1.5 | ) | — | |||||
| Business divestitures | (1.4 | ) | — | |||||
| Severance and other | (2.4 | ) | — | |||||
| Adjusted SG&A | $ | 381.2 | $ | 453.7 | ||||
| Adjusted Operating Earnings | ||||||||
| Operating (loss) earnings | $ | (108.0 | ) | $ | 17.5 | |||
| Transformation costs | 1.5 | — | ||||||
| Business divestitures | 1.4 | — | ||||||
| Property, equipment & other asset impairments | 3.9 | — | ||||||
| Severance and other | 2.4 | — | ||||||
| Adjusted operating (loss) earnings | $ | (98.8 | ) | $ | 17.5 | |||
| Adjusted Net (Loss) Income | ||||||||
| Net (loss) income | $ | (165.7 | ) | $ | 6.8 | |||
| Loss from discontinued operations | 0.6 | 0.7 | ||||||
| Net (loss) income from continuing operations | $ | (165.1 | ) | $ | 7.5 | |||
| Transformation costs | 1.5 | — | ||||||
| Business divestitures | 1.4 | — | ||||||
| Property, equipment & other asset impairments | 3.9 | — | ||||||
| Severance and other | 2.4 | — | ||||||
| Tax effect of non-GAAP adjustments | (1.0 | ) | — | |||||
| Tax valuation allowance | 53.0 | — | ||||||
| Adjusted net (loss) income | $ | (103.9 | ) | $ | 7.5 | |||
| Adjusted (loss) earnings per share | ||||||||
| Basic | $ | (1.61 | ) | $ | 0.07 | |||
| Diluted | $ | (1.61 | ) | $ | 0.07 | |||
| Number of shares used in adjusted calculation | ||||||||
| Basic | 64.5 | 102.4 | ||||||
| Diluted | 64.5 | 102.5 | ||||||
| 13 Weeks Ended | 13 Weeks Ended | |||||||
| Reconciliation of Adjusted EBITDA to Net (Loss) Income | ||||||||
| Net (loss) income | $ | (165.7 | ) | $ | 6.8 | |||
| Loss from discontinued operations, net of tax | 0.6 | 0.7 | ||||||
| (Loss) income from continuing operations | $ | (165.1 | ) | $ | 7.5 | |||
| Interest expense, net | 6.7 | 7.7 | ||||||
| Depreciation and amortization | 21.5 | 23.3 | ||||||
| Income tax expense | 50.4 | 2.3 | ||||||
| EBITDA | $ | (86.5 | ) | $ | 40.8 | |||
| Stock-based compensation | 1.8 | 1.9 | ||||||
| Transformation costs | 1.5 | — | ||||||
| Business divestitures | 1.4 | — | ||||||
| Property, equipment & other asset impairments | 3.9 | — | ||||||
| Severance and other | 2.4 | — | ||||||
| Adjusted EBITDA | $ | (75.5 | ) | $ | 42.7 | |||
Non-GAAP Measures and Other Metrics
Adjusted EBITDA is a supplemental financial measure of the Company’s performance that is not required by, or presented in accordance with, GAAP. We believe that the presentation of this non-GAAP financial measure provides useful information to investors in assessing our financial condition and results of operations. We define Adjusted EBITDA as net income (loss) before income taxes, plus interest expense, net and depreciation and amortization, excluding stock-based compensation, transformation costs, business divestitures, asset impairments, severance and other non-cash charges. Net income (loss) is the GAAP financial measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measures should not be considered as an alternative to the most directly comparable GAAP financial measure. Furthermore, non-GAAP financial measures have limitations as an analytical tool because they exclude some but not all items that affect the most directly comparable GAAP financial measures. Some of these limitations include:
- certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure;
- Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
- our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
We compensate for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP financial measure, understanding the differences between the GAAP and non-GAAP financial measures and incorporating these data points into our decision-making process. Adjusted EBITDA is provided in addition to, and not as an alternative to, the Company’s financial results prepared in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined and determined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
Contact
(817) 424-2001
investorrelations@gamestop.com
Source: GameStop Corporation