GameStop Reports Third Quarter Fiscal 2019 Results and Updates Fiscal 2019 Guidance
Mr. Sherman continued, “Since July, we have repurchased more than one-third of our outstanding shares, underscoring our continued conviction in the long-term value proposition of
Third Quarter Results
GameStop’s third quarter total global sales decreased 25.7% (24.7% in constant currency) to
- New hardware sales decreased 45.8%, reflecting anticipated next generation console launches in 2020.
- New software sales decreased 32.6%, with growth in Nintendo Switch software titles more than offset by weaker title launches across other consoles in the quarter compared to last year.
- Accessories sales decreased 13.4%.
- Pre-owned sales declined 13.3% with declines in hardware and software.
- Collectibles sales increased 4.3%, with continued growth in both domestic and international stores.
GameStop’s third quarter GAAP net loss was
Excluding the
A reconciliation of non-GAAP results, including adjusted net income (loss) from continuing operations and adjusted operating earnings from continuing operations, to its most directly comparable GAAP financial measure is included with this release (Schedule III).
Capital Allocation Update
During the quarter, the company repurchased 22.6 million shares of its common stock, for
As previously disclosed, during fiscal 2019, the company has reduced its outstanding debt by
2019 Outlook
The company is providing the following updated guidance for full fiscal year 2019:
| Comparable Store Sales | A decline in the high-teens |
| Adjusted (Non-GAAP) Earnings Per Share (diluted)* | $0.10 to $0.20 |
| Capital Expenditures | $80 million to $85 million |
*A reconciliation of non-GAAP forward-looking projections to GAAP financial measures is not available as the nature or amount of potential adjustments, which may be significant, cannot be determined at this time.
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 Financial Measures and Other Metrics
As a supplement to our financial results presented in accordance with U.S. generally accepted accounting principles (GAAP), GameStop may use certain non-GAAP financial measures, such as adjusted operating earnings (loss), adjusted net income (loss), adjusted earnings per share, adjusted income tax rate and constant currency. We believe these non-GAAP financial measures provide useful information to investors in evaluating our core operating performance across reporting periods by excluding items we do not believe are indicative of our core business or affect comparability. Adjusted operating earnings (loss), adjusted net income (loss), adjusted earnings per share and adjusted income tax rate exclude the effect of items such as goodwill and asset impairments, store closure costs, severance, non-operating tax charges, as well as acquisition and divestiture costs, and transformation 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. Accordingly, we believe that our presentation of amounts on a constant currency basis is useful to investors because it enables them to better understand the changes in our business that are not related to currency movements. 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 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 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 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 Reboot strategic plan; 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, including due to supply chain disruptions on account of trade restrictions, political instability, 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 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
Condensed Consolidated Statements of Operations
(in millions, except per share data)
(unaudited)
| 13 weeks ended November 2, 2019 |
13 weeks ended November 3, 2018 |
|||||||
| Net sales | $ | 1,438.5 | $ | 1,935.4 | ||||
| Cost of sales | 997.4 | 1,377.2 | ||||||
| Gross profit | 441.1 | 558.2 | ||||||
| Selling, general and administrative expenses | 451.8 | 463.6 | ||||||
| Depreciation and amortization | 23.6 | 25.0 | ||||||
| Goodwill impairments | — | 557.3 | ||||||
| Asset impairments | 11.3 | 30.2 | ||||||
| Operating loss | (45.6) | (517.9) | ||||||
| Interest expense, net | 6.0 | 13.0 | ||||||
| Loss from continuing operations before income taxes | (51.6) | (530.9) | ||||||
| Income tax expense (benefit) | 31.6 | (24.0) | ||||||
| Net loss from continuing operations | (83.2) | (506.9) | ||||||
| (Loss) income from discontinued operations, net of tax | (0.2) | 18.3 | ||||||
| Net loss | $ | (83.4) | $ | (488.6) | ||||
| Basic (loss) earnings per share: | ||||||||
| Continuing operations | $ | (1.01) | $ | (4.96) | ||||
| Discontinued operations | — | 0.18 | ||||||
| Basic loss per share | $ | (1.02) | $ | (4.78) | ||||
| Diluted (loss) earnings per share: | ||||||||
| Continuing operations | $ | (1.01) | $ | (4.96) | ||||
| Discontinued operations | — | 0.18 | ||||||
| Diluted loss per share | $ | (1.02) | $ | (4.78) | ||||
| Dividends per common share | $ | — | $ | 0.38 | ||||
| Weighted-average common shares outstanding: | ||||||||
| Basic | 82.1 | 102.2 | ||||||
| Diluted | 82.1 | 102.2 | ||||||
| Percentage of Net Sales: | ||||||||
| Net sales | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 69.3 | 71.2 | ||||||
| Gross profit | 30.7 | 28.8 | ||||||
| Selling, general and administrative expenses | 31.4 | 23.9 | ||||||
| Depreciation and amortization | 1.6 | 1.3 | ||||||
| Goodwill impairments | — | 28.8 | ||||||
| Asset impairments | 0.8 | 1.6 | ||||||
| Operating loss | (3.1) | (26.8) | ||||||
| Interest expense, net | 0.5 | 0.6 | ||||||
| Loss from continuing operations before income taxes | (3.6) | (27.4) | ||||||
| Income tax expense (benefit) | 2.2 | (1.2) | ||||||
| Net loss from continuing operations | (5.8) | (26.2) | ||||||
| (Loss) income from discontinued operations, net of tax | — | 1.0 | ||||||
| Net loss | (5.8) | % | (25.2) | % | ||||
| 39 weeks ended November 2, 2019 |
39 weeks ended November 3, 2018 |
|||||||
| Net sales | $ | 4,271.9 | $ | 5,222.3 | ||||
| Cost of sales | 2,960.5 | 3,663.0 | ||||||
| Gross profit | 1,311.4 | 1,559.3 | ||||||
| Selling, general and administrative expenses | 1,341.7 | 1,361.2 | ||||||
| Depreciation and amortization | 69.3 | 80.5 | ||||||
| Goodwill impairments | 363.9 | 557.3 | ||||||
| Asset impairments | 11.3 | 30.2 | ||||||
| Operating loss | (474.8) | (469.9) | ||||||
| Interest expense, net | 20.7 | 40.6 | ||||||
| Loss from continuing operations before income taxes | (495.5) | (510.5) | ||||||
| Income tax (benefit) expense | (6.2) | 15.8 | ||||||
| Net loss from continuing operations | (489.3) | (526.3) | ||||||
| (Loss) income from discontinued operations, net of tax | (2.6) | 41.0 | ||||||
| Net loss | $ | (491.9) | $ | (485.3) | ||||
| Basic (loss) earnings per share: | ||||||||
| Continuing operations | $ | (5.16) | $ | (5.16) | ||||
| Discontinued operations | (0.03) | 0.40 | ||||||
| Basic loss per share | $ | (5.19) | $ | (4.76) | ||||
| Diluted (loss) earnings per share: | ||||||||
| Continuing operations | $ | (5.16) | $ | (5.16) | ||||
| Discontinued operations | (0.03) | 0.40 | ||||||
| Diluted loss per share | $ | (5.19) | $ | (4.76) | ||||
| Dividends per common share | $ | 0.38 | $ | 1.14 | ||||
| Weighted-average common shares outstanding: | ||||||||
| Basic | 94.8 | 102.0 | ||||||
| Diluted | 94.8 | 102.0 | ||||||
| Percentage of Net Sales: | ||||||||
| Net sales | 100.0 | % | 100.0 | % | ||||
| Cost of sales | 69.3 | 70.1 | ||||||
| Gross profit | 30.7 | 29.9 | ||||||
| Selling, general and administrative expenses | 31.4 | 26.1 | ||||||
| Depreciation and amortization | 1.6 | 1.5 | ||||||
| Goodwill impairments | 8.5 | 10.7 | ||||||
| Asset impairments | 0.3 | 0.6 | ||||||
| Operating loss | (11.1) | (9.0) | ||||||
| Interest expense, net | 0.5 | 0.8 | ||||||
| Loss from continuing operations before income taxes | (11.6) | (9.8) | ||||||
| Income tax (benefit) expense | (0.2) | 0.3 | ||||||
| Net loss from continuing operations | (11.4) | (10.1) | ||||||
| (Loss) income from discontinued operations, net of tax | (0.1) | 0.8 | ||||||
| Net loss | (11.5) | % | (9.3) | % | ||||
Condensed Consolidated Balance Sheets
(in millions)
(unaudited)
| November 2, 2019 | November 3, 2018 | |||||
| ASSETS: | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 290.3 | $ | 448.6 | ||
| Receivables, net | 145.7 | 152.3 | ||||
| Merchandise inventories, net | 1,286.7 | 1,881.5 | ||||
| Prepaid expenses and other current assets | 127.6 | 149.0 | ||||
| Assets held for sale | 12.8 | 631.6 | ||||
| Total current assets | 1,863.1 | 3,263.0 | ||||
| Property and equipment, net | 287.1 | 323.9 | ||||
| Operating lease right-of-use assets | 758.1 | — | ||||
| Deferred income taxes | 157.8 | 189.0 | ||||
| Goodwill | — | 777.0 | ||||
| Other noncurrent assets | 79.5 | 103.8 | ||||
| Total assets | $ | 3,145.6 | $ | 4,656.7 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 709.9 | $ | 1,452.8 | ||
| Accrued and other current liabilities | 625.1 | 700.8 | ||||
| Current portion of operating lease liabilities | 238.5 | — | ||||
| Current portion of debt, net | — | 348.8 | ||||
| Liabilities held for sale | — | 54.3 | ||||
| Total current liabilities | 1,573.5 | 2,556.7 | ||||
| Deferred income taxes | 0.1 | 0.1 | ||||
| Long-term debt, net | 419.4 | 471.2 | ||||
| Operating lease liabilities | 516.5 | — | ||||
| Other long-term liabilities | 19.0 | 63.6 | ||||
| Total liabilities | 2,528.5 | 3,091.6 | ||||
| Total stockholders’ equity | 617.1 | 1,565.1 | ||||
| Total liabilities and stockholders’ equity | $ | 3,145.6 | $ | 4,656.7 | ||
| GameStop Corp. | ||||
| Schedule I | ||||
| Sales Mix | ||||
| (unaudited) | ||||
| 13 Weeks Ended | 13 Weeks Ended | |||||||||||
| November 2, 2019 | November 3, 2018 | |||||||||||
| Net | Percent | Net | Percent | |||||||||
| Net Sales (in millions): | Sales | of Total | Sales | of Total | ||||||||
| New video game hardware (1) | $ | 189.0 | 13.1 | % | $ | 349.0 | 18.0 | % | ||||
| New video game software | 485.9 | 33.8 | % | 720.7 | 37.2 | % | ||||||
| Pre-owned and value video game products | 344.2 | 23.9 | % | 396.9 | 20.5 | % | ||||||
| Video game accessories | 156.5 | 10.9 | % | 180.8 | 9.3 | % | ||||||
| Digital | 37.0 | 2.6 | % | 45.4 | 2.3 | % | ||||||
| Collectibles | 161.2 | 11.2 | % | 154.6 | 8.0 | % | ||||||
| Other (2) | 64.7 | 4.5 | % | 88.0 | 4.7 | % | ||||||
| Total | $ | 1,438.5 | 100.0 | % | $ | 1,935.4 | 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. We divested our Simply Mac business in September 2019. 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 II |
| Gross Profit Mix |
| (unaudited) |
| 13 Weeks Ended | 13 Weeks Ended | |||||||||||
| November 2, 2019 | November 3, 2018 | |||||||||||
| Gross Profit (in millions): | Gross Profit |
Gross Profit Percent |
Gross Profit |
Gross Profit Percent |
||||||||
| New video game hardware (1) | $ | 21.3 | 11.3 | % | $ | 36.5 | 10.5 | % | ||||
| New video game software | 111.8 | 23.0 | % | 159.0 | 22.1 | % | ||||||
| Pre-owned and value video game products | 147.1 | 42.7 | % | 171.1 | 43.1 | % | ||||||
| Video game accessories | 56.8 | 36.3 | % | 65.0 | 36.0 | % | ||||||
| Digital | 32.9 | 88.9 | % | 42.4 | 93.4 | % | ||||||
| Collectibles | 54.1 | 33.6 | % | 57.8 | 37.4 | % | ||||||
| Other (2) | 17.1 | 26.4 | % | 26.4 | 30.0 | % | ||||||
| Total | $ | 441.1 | 30.7 | % | $ | 558.2 | 28.8 | % | ||||
| (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. We divested our Simply Mac business in September 2019. 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 results
The 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. 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 tax adjustments below for the 13 and 39 weeks ended
| GameStop Corp. |
| Schedule III |
| (in millions, except per share data) |
| (unaudited) |
| 13 Weeks Ended | 13 Weeks Ended | 39 Weeks Ended | 39 Weeks Ended | |||||||||
| November 2, 2019 | November 3, 2018 | November 2, 2019 | November 3, 2018 | |||||||||
| Adjusted Operating (Loss) Earnings | ||||||||||||
| Operating loss | $ | (45.6) | $ | (517.9) | $ | (474.8) | $ | (469.9) | ||||
| Transformation costs | 10.4 | — | 27.1 | — | ||||||||
| Business divestitures | 1.3 | — | 1.3 | — | ||||||||
| Goodwill impairments | — | 557.3 | 363.9 | 557.3 | ||||||||
| Property, equipment & other asset impairments | 11.3 | — | 11.3 | — | ||||||||
| Intangible impairments | — | 30.2 | — | 30.2 | ||||||||
| Severance and other | 4.0 | — | 24.3 | 11.2 | ||||||||
| Adjusted operating (loss) earnings | $ | (18.6) | $ | 69.6 | $ | (46.9) | $ | 128.8 | ||||
| Adjusted Net (Loss) Income | ||||||||||||
| Net loss | $ | (83.4) | $ | (488.6) | $ | (491.9) | $ | (485.3) | ||||
| (Loss) income from discontinued operations | (0.2) | 18.3 | (2.6) | 41.0 | ||||||||
| Net loss from continuing operations | (83.2) | (506.9) | (489.3) | (526.3) | ||||||||
| Transformation costs | 10.4 | — | 27.1 | — | ||||||||
| Business divestitures | 1.3 | — | 1.3 | — | ||||||||
| Goodwill impairments | — | 557.3 | 363.9 | 557.3 | ||||||||
| Property, equipment & other asset impairments | 11.3 | — | 11.3 | — | ||||||||
| Intangible Impairments | — | 30.2 | — | 30.2 | ||||||||
| Severance and other | 4.0 | — | 24.3 | 11.2 | ||||||||
| Tax adjustments | 16.0 | (30.6) | (3.3) | (32.1) | ||||||||
| France tax audit/tax legislation | — | — | — | 29.6 | ||||||||
| Adjusted net (loss) income | $ | (40.2) | $ | 50.0 | $ | (64.7) | $ | 69.9 | ||||
| Adjusted (loss) earnings per share | ||||||||||||
| Basic | $ | (0.49) | $ | 0.49 | $ | (0.68) | $ | 0.69 | ||||
| Diluted | $ | (0.49) | $ | 0.49 | $ | (0.68) | $ | 0.68 | ||||
| Number of shares used in adjusted calculation | ||||||||||||
| Basic | 82.1 | 102.2 | 94.8 | 102.0 | ||||||||
| Diluted | 82.1 | 102.4 | 94.8 | 102.2 | ||||||||
Contact
(817) 424-2001
investorrelations@gamestop.com
Source: GameStop Inc.