Q2 2022 GameStop Corp Earnings Call

Good afternoon, and welcome to the Gamestop second quarter 2022 earnings Conference call. Please note that certain statements made during the call constitute forward looking statements made pursuant to the safe Harbor provisions of the private Securities Litigation Act of 1995 as amended such forward looking statements are subject to both known and unknown.

Known risks and uncertainties that could cause actual results to differ materially from such statements. These risks and uncertainties are described in the company's earnings release Press earnings press release and its filings with the SEC. The forward looking statements today are made as of the date of this call and the company does not undertake any obligation to update the forward looking statements.

I will now turn the call over to Gamestop CEO , Matt furlong.

Thank you and good afternoon, everyone.

I want to begin by reiterating the deep appreciation, we have for our stockholders unrivaled enthusiasm passion and support.

As we work to transform Gamestop these remain unique tailwind for us.

We always recognize and value.

I also want to take this opportunity to thank everyone across the organization for bringing continued focus and intensity to our mission, particularly during this active Q2 that represented a transitional quarter for us.

Before covering the quarter specific initiatives and results I want to provide a high level update on where we've been and where we're looking to go as our transformation progresses.

When our board began turning over early last year Gamestop with saddled with significant debt decaying system limited employee depth and a host of other issues.

This is why we spent the second half of 2021 and the first half of 2022, making up for years of Underinvestment and modernizing the business.

The upshot is we now have a more diversified product catalog strengthened fulfillment network improved tech stack and ecommerce presence and four to five corporate infrastructure. Thanks.

Thanks to these improvements, including our SAP implementation, we're able to start focusing on a new set of priorities that include achieving profitability launching proprietary products leveraging our brand in new ways and investing further in our stores.

During Q2, we took steps to support each of these new priorities with.

With respect to pursuing profitability in the coming quarters, we right sized corporate expenditures and head count following a period in which the company had hired more than 600, new individuals'.

These actions combined with the elimination of onetime expenses in Q1 contributed to a 14, 3% reduction in SG&A.

We've done this while improving our e-commerce experience and reducing the free shipping to customers to one to three day.

We're going to retain a strong focus on cost containment and continue promoting an ownership mentality across the organization.

On the product front, our enhanced <unk> capabilities allowed us to follow the launch of our digital wallet with the launch of our new marketplace that allows gamers creators collectors and others to buy sell and trade and Ftes.

The launch of our NSP marketplace supports gamestop pursuit of long term growth in the crypto currency.

Ft in web three gaming verticals, all of which we expect to be increasingly relevant for the collectors and gamers of the future.

When it comes to accretive partnerships, we've been actively exploring opportunities to strengthen gamestop offerings and increase brand visibility.

We're building on the momentum established by our previously disclosed partnerships with organizations like a beautiful and blueprint whether it be through new relationships that support our commerce business blockchain group or both.

The deal, we just announced with MTX as a byproduct of our commerce and blockchain teams working together to establish something unique in the retail world.

Lastly, when it comes to investing in our stores, we rolled out an improved compensation model for U S store leaders.

Each of these store leaders as being given a time based equity grant of $21000. The best over three years as well as the opportunity to earn additional compensation every quarter via a performance based equity grants.

In conjunction or raising hourly pay for certain store associates. These steps were taken to help us enhance retention and recruitment of passionate quality talent.

When we think about the gamestop of the future, we expect our stores to help us maintain direct connectivity to customers and sustained localized order fulfillment capabilities across more geographies.

This is why even as we continue evolving our e-commerce and digital asset offerings stores will remain a critical piece of the companys value proposition.

Taken together, we believe the aforementioned steps can help us attain profitability in the coming quarters and produce additional revenue growth over the long term.

Let me now turn to our financial results for Q2.

Net sales were $1 <unk> $6 billion for the quarter compared to $1 $183 billion in the prior year's second quarter.

Sales attributable to new and expanded brand relationships remained strong.

It is also worth noting that sales attributable to collectibles, which is a segment we intend to grow over the long term for $223 2 million for the quarter compared to $177 $2 million in the prior year's second quarter.

SG&A was $387 5 million or 34, 1% of sales compared to $378 9 million or 32% of sales in last year's second quarter as.

As noted we had a strong reduction in SG&A on a sequential basis versus Q1 of this year and we're taking further steps to reduce SG&A on a go forward basis.

We reported a net loss of $108 7 million or.

<unk> 36 per diluted share compared to a net loss of $61 6 million or a loss per diluted share <unk> 21 in the prior year's second quarter.

There were no major onetime transformation transaction related costs during the period.

Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $908 $9 million we.

To maintain a sizable cash position, even while investing in inventory to sustain strong in stock levels and mitigate the full impact of lingering supply chain issues.

At the close of the second quarter, we had no borrowings under our ABL facility and no debt other than a low interest unsecured term loan associated with the French government's response to COVID-19.

Total liabilities compared to the second quarter of last year were down $237 $8 million.

Capital expenditures for the quarter were $25 million up $7 million from last years second quarter, reflecting investments in our technology and enterprise systems, We anticipate capex will remain at modest levels.

In the second quarter cash flow from operations was an outflow of $103 4 million compared to an outflow of $11 5 million during the same period last year.

Inventory was $734 $8 million at the close of the quarter compared to $596 $4 million at the close of the prior year's second quarter.

In terms of an outlook, we're not providing formal guidance at this time.

It is worth, noting however that our ongoing engagement with key suppliers is positioning us to receive stronger supply of next generation consoles in the months ahead.

I want to finish by reinforcing that we're working to accomplish something unprecedented in our industry.

Transform a legacy brick and mortar retailer into a technology led organization that meets customers needs through stores and E Commerce properties in both digital marketplaces and new online communities.

Our path to becoming a more diversified and tech centric business is one that obviously carries risk and will take time.

Said, we believe gamestop as a much stronger business than it was 18 months ago.

I'll leave it there for this quarter, we look forward to driving more progress in Q3. Thank you.

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<unk> todays conference you may disconnect your lines at this time, thank you for your participation.