Q1 2021 GameStop Corp Earnings Call

Your for joining the Gamestop call your conference will begin shortly.

[music].

Greetings and welcome to the Gamestop first quarter fiscal 'twenty 'twenty 1 earnings conference call. At this time, all participants are in a listen only mode.

Anyone should require operator assistance during the conference. Please.

Press Star Zero on your telephone keypad as a reminder, this conference is being recorded.

Now my pleasure to introduce your host Eric Cerny Investor Relations. Thank you Mr. Cerny, you may begin.

Thank you and welcome to Gamestop as first quarter fiscal 2021 earnings Conference call. This call will include forward looking statements.

<unk>, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.

Any such statements should be considered in conjunction with the cautionary statements and the safe Harbor statement in the earnings release and risk factors discussed in reports filed with the SEC.

Gamestop assumes no.

Obligation to update any of these forward looking statements or information a reconciliation and other information regarding non-GAAP financial measures discussed on the call can be found in the earnings release issued earlier today as well as the investors section of our website.

Joining me today is gamestop as Chief Executive Officer, George Sherman on today's.

We'll discuss our business from strategic initiatives.

Led by our review of the financial results. Please note that we will not be doing a Q&A session at the end of this call.

Now I would like to turn the call over to the company's Chief Executive Officer, George Sherman.

Good afternoon, and thank you for joining our first quarter fiscal 2000.

Called George earnings call.

Gamestop is off to a strong start to the year from both a sales and operations perspective.

First quarter sales grew 25% year over year, and we ended the period with $771 million in total cash on the balance sheet and.

An increase of more than $185 million compared to last year.

Throughout the first quarter. We also took a number of steps that align with our previously stated priorities. These steps include.

Adding retail and technology talent to our senior leadership team by appointing a chief operating officer, Chief growth Officer, and Chief Technology Officer.

We also made a number of other senior hires across.

<unk> brand merchandising e-commerce supply chain and fulfillment.

Each of these new additions have proven backgrounds and experience from companies such as Amazon, Google and chewing.

Second we further strengthened the company's balance sheet by raising more than $550 million in net proceeds.

From our April ATM program.

We also eliminated our long term debt with the voluntary early redemption of our 2023 senior notes.

Third we expanded our fulfillment network by adding a 700000 square foot facility in York, Pennsylvania.

This new distribution center, which is expected to be.

The operational by the fourth quarter of this year will enhance our order fulfillment capabilities on the east coast.

Lastly, we continued to expand our product offering by adding natural extensions such as PC gaming computers monitors game tables and gaming Tvs just to name a few.

We intend to continue taking steps to evolve the business and build a world class technology infrastructure, while simultaneously capitalizing on the emerging console cycle.

Today, we also announced a new ATM offering through a prospectus filing to offer up to 5 million shares of our common stock.

The company intends to use any net.

Net proceeds for general corporate purposes, as well as for investing in growth initiatives and further strengthening the balance sheet.

Before I review the financial results for the quarter I'd like to comment on this afternoons press release announcing the hiring of a CEO and a permanent CFO.

Matt furlong, our incoming CEO.

<unk> has an impressive background from Amazon, where he most recently led Australia and oversaw significant growth in that region.

Matt has a proven e-commerce leader with a firm understanding of how to delight customers.

<unk> focus intensity and work ethic will set the right Tony the top of the company as we begin shifting to a growth phase.

He also brings a strong understanding of brand in retail from his tenure at Procter <unk> Gamble, where he began his career.

Mike recoup row, our incoming permanent CFO also joins us from Amazon, where he was most recently CFO of North American consumer and CFO of Prime video.

Mike spent nearly 2 decades of Amazon and held a variety of senior finance roles across the organization.

His experience, helping business lines scale and achieve market leadership is exactly what we need going forward.

I look forward to working with Matt and Mike to ensure seamless transition in the coming weeks.

I also want to take this opportunity to thank Diana GE for her guidance and willingness to take on additional responsibilities during her time as interim CFO Diana.

Dana will return to her role as Chief Accounting officer within the Finance organization once Mike officially joins.

Now turning to our financial results.

Weeks skills for the quarter increased 25, 1% to $1.3 billion compared to $1 billion in the prior year period importantly.

Importantly, we achieved this growth with a roughly 12% reduction in our global store fleet due to our strategic Densification efforts and the continued store closures in Europe during the quarter.

Due to the COVID-19 pandemic.

Overall gross margins were 25, 9% down 180 basis points from 27, 7 in the fiscal first quarter last year.

The decline was primarily driven by an expected increase in mix of lower margin sales.

From an SG&A.

<unk> perspective, our reported SG&A expenses were $373 million, reflecting decline of $16.2 million or 4.2% versus reported SG&A in the first quarter last year.

And at 880 basis point improvement on a percentage of sales basis.

Adjusting for severance transformation and other costs.

Costs, our adjusted SG&A declined $29.5 million or 7.7% year over year and reflects nearly 10 percentage points of sales leverage.

We reported an operating loss of $48 million compared to an operating loss of $108 million in the prior year first quarter.

Adjusted.

The operating loss was $21.6 million compared to a loss of $98.8 million in the prior year period.

Income tax from the first quarter was an expense of $1.3 million, which compares to an income tax expense of $54 million in the prior year first quarter.

Our effective income tax rate for the quarter.

Adjusted was 2% and impacted by valuation allowances recorded in prior periods as well as the mix of earnings across the jurisdictions in which we operate.

We reported a net loss of $66.8 million or a dollar a 1 cent per diluted share compared to a net loss of $165.7 million.

Quarter or a loss per diluted share of $2.57.

In the prior year first quarter.

Our adjusted net loss was $29.4 million.

Or $45.45 per diluted share compared to adjusted net loss of $157.6 million or a loss of $2.44.

The diluted share in the fiscal 2021st quarter.

In the first quarter, we continued to focus on strategically diversifying our global store fleet closing a net total of 118 stores in the quarter.

At quarter end, we operated 4698 stores across the globe.

Okay.

Turning to the balance sheet, we ended the quarter with cash and restricted cash of $778 million or $186.9 million higher than the end of the first quarter last year.

Overall debt levels compared to the first quarter of last year were reduced by $504 million and reflect the redemption of $202 million.

Of senior notes due in 2021 the.

The voluntary early redemption of $216.4 billion of 10% senior notes due in 2023.

And the $135 million pay down of the company's asset base revolving credit facility.

At the end of the quarter, we had no borrowings under our asset based revolving.

Credit facility, no long term debt and $48.1 billion of short term debt, which is a low interest loan from the French government offered to us with the equivalent of the cares Act in the U S related to the response to COVID-19.

Capital expenditures for the quarter were $14.7 million.

First quarter cash flow from operating activities was an outflow of $18.8 million, an increase of $35 billion compared to an outflow of $49.3 million during the same period last year.

In terms of our outlook, we remain optimistic about both the emerging console cycle and our future.

And the FERC <unk> business risks remain elevated due to the pandemic and post pandemic uncertainty and we are not providing specific annual sales and earnings guidance.

We are pleased with our start to the year and strong sales in may which were up approximately 27% year over year.

We remain focused on positioning gamestop for long term.

Growth as we prioritize delighting, our customer and providing a differentiated and superior customer experience.

Finally, given this is my last time speaking with U S. Gamestop CEO I want to share that I'm very proud of what we've accomplished over the past 2 years, including navigating the pandemic and positioning the company with strong liquidity.

D and an improved platform for growth.

It's been a privilege to lead so many dedicated and talented team members, who collectively possess tremendous passion for the gaming industry.

We have helped bring stability and strength of the business, including by details defying our store footprint, reducing cost and debt and returning our company to growth.

I also want to take this opportunity to thank our customers for their belief in us and an amazing group of shareholders, who have so demonstrably exhibited their support for us.

Look forward to working with our newly appointed board and leadership team going forward.

Thank you again for your support and your interest in Gamestop.

This concludes today's conference you may disconnect.

Connect your lines at this time, thank you for your participation and have a wonderful evening.