GameStop Corporation

Q4 2022 Earnings Call — March 21, 2023

Executive Name (Matt Furlong, CEO): Good afternoon to everyone joining today's call. I want to begin by thanking all of our employees for their dedication and hard work over the past year. Similarly, I want to thank our customers, partners, and stockholders for their continued loyalty and enthusiasm. This continued passion was a strong tailwind for us in 2022 as we pivoted to focus on near-term profitability while pursuing longer-term sustainable growth. Before discussing our initiatives and results in detail, I want to take a moment to shed some light on where we've been, where we are, and where we're looking to go. The past two years have obviously been transformative for GameStop. It's critical to provide context as to why we're a stronger and increasingly efficient business today, one that is well positioned in an otherwise challenged retail sector. At the start of 2021, prior to any major changes atop GameStop, the company had burdensome debt, dwindling cash, strained relationships with vendors, and no meaningful stockholders in the boardroom. The company's future was very uncertain and market participants predicted we were heading for bankruptcy.

Throughout 2021, we refreshed our board, rebuilt our management team, recapitalized the balance sheet, and paid down debt. We also established accretive partnerships, fortified our infrastructure, and explored growth opportunities, some of which materialized and some of which did not. As we began fiscal year 2022, our operating environment dramatically changed due to the onset of inflation, rising interest rates, and material macro headwinds. In keeping with our ownership mentality, we considered the implications for GameStop and our stockholders. Rather than stand still, we pivoted last year to cut costs, optimize inventory, and focus on enhancing the customer experience. We found efficient ways to improve shipping times integrate online and in-store shopping experiences, and establish a culture of increased incentivization among store leaders and tenured associates. This pivot obviously included headcount reductions as we streamlined operations and cultivated a fast-paced, intense operating environment geared toward cost containment, efficiency, and profitability. Fortunately, the team we have in place today is embracing this culture and executing with effectiveness.

The upshot of all this change is evidenced in our results this quarter. GameStop produced net income of $48.2 million compared to a net loss of $147.5 million in the fourth quarter of 2021. Looking ahead, we're aggressively focused on year-over-year profitability improvement while still pursuing pragmatic long-term growth. We are taking a number of steps in fiscal year 2023 to improve our efficiency and support these overarching goals. These include continuing to cut excess costs, including in Europe, where we have already initiated exits and partial wind downs in certain countries. Leveraging our strengthened financial position to continue obtaining improved terms from suppliers and vendors. Getting full console allocations to help us meet customer demand during this extended cycle. Assessing partnerships with gaming and retail companies that can enable us to capture cost-effective top-line growth, leveraging our unique refurbishment capabilities to drive growth in pre-owned, and building a stronger presence in higher margin categories like collectibles and toys, where we have already seen pockets of growth.

Although there is a lot of hard work and necessary execution in front of us, GameStop is a much healthier business today than it was at the start of 2021. We have considerable cash on hand, negligible debt, streamlined inventory, and a path to full-year profitability. Our plan is to use this strong positioning to continue delivering a unique customer experience and long-term stockholder value. Let me now turn to our financial results. Net sales were $2.226 billion for the quarter, compared to $2.254 billion in the fourth quarter of 2021. For the full year, net sales were $5.927 billion, compared to $6.011 billion for the fiscal year 2021. Net income was $48.2 million for the quarter, or 16 cents per diluted share, compared to a net loss of $147.5 million, or 49 cents per diluted share, in the prior year's fourth quarter. The company had a net loss of $313.1 million or $1.03 per diluted share for the full year, down from a net loss of $381.3 million or $1.31 per diluted share for fiscal year 2021. SG&A was $453.4 million or 20.4% of sales, compared to $538.9 million or 23.9% of sales in last year's fourth quarter.

For the full year, SG&A was $1.68 billion, compared to $1.71 billion for fiscal year 2021. Turning to the balance sheet, we finished the year with cash, cash equivalents, and marketable securities of $1.39 billion. We finished fiscal year 2021 with cash, cash equivalents, and marketable securities of $1.27 billion. We built back and invested our cash position over the course of the year and will continue to focus on maintaining a very solid balance sheet. At the end of the year, 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. Capital expenditures for the quarter were $11.6 million bringing full-year CapEx to $55.9 million. We expect a reduction in CapEx in 2023 and to remain at limited levels. In the fourth quarter, cash flow provided by operations was $337.2 million, compared to an outflow of $110.3 million during the same period last year. This reflects, in part, our focus on streamlining our inventory. We ended the year with $682.9 million in inventory compared to $915 million at the close of fiscal year 2021.

Entering the new year, we expect to continue to incur transformation charges in the first quarter of 2023 as we aggressively cut costs. And with respect to an outlook, we're not delivering guidance

at this time.

We want stockholders to judge us on our results instead of our words. In closing, there is still significant work ahead of us, and we are focused on building from this quarter's progress rather than reflecting on our gains. We're going to aggressively pursue further cost containment, efficiency, profitability, and pragmatic growth in the categories where we can consistently delight our customers. I'll wrap it up here for today. As always, we appreciate the enthusiasm and support from our customers, employees, and stockholders. This concludes today's conference. You may disconnect your lines

at this time.

Thank you for your participation.

Q3 2022 Earnings Call — December 7, 2022

Executive Name (Matt Furlong, CEO): Good afternoon, everyone. I want to begin by acknowledging the dedication and focus of the teams managing our stores, fulfillment centers, and e-commerce platforms. As the holiday season begins, they are going the extra mile and working exceptionally hard to deliver for our customers. I also want to take the opportunity to acknowledge our stockholders who continue to demonstrate unrivaled enthusiasm and support. As we work to transform the company and do something unprecedented in the retail sector, that sustained passion is a major tailwind for us.

Similar to last quarter, I'm going to spend some time at the outset of this call recapping where we've been, where we are now, and where we're looking to go. Throughout 2021 and 2022, we were extremely focused on repairing our decayed foundation, reestablishing a culture of operational intensity, and setting the right long-term priorities. This translated to building a strong balance sheet, modernizing a crumbling infrastructure, and putting together teams that are now able to operate with the nimbleness and efficiency our stockholders and customers expect.

Today, we're in the process of aligning corporate costs to our go-forward needs after completing the majority of necessary upgrades to our systems, fulfillment capabilities, and overall foundation. A large portion of our cost cuts will stem from reductions in corporate headcount that have been made during the back half of this calendar year. In some cases, individuals who helped us complete key initiatives have left on their own accord and are not being replaced. In other cases, we've made the decision to eliminate or streamline parts of the organization where we can leverage the work completed over the past 18 months to operate with increased efficiency.

We now have a firm understanding of the resources required to pursue opportunities in gaming, as well as high potential growth categories like collectibles and pre-owned businesses. Looking ahead, we have two overarching priorities, achieving profitability in the near term and driving pragmatic growth over the long term. Now that the necessary investments have been made and we have identified the aforementioned opportunity set, we're going to be very judicious with respect to how we allocate capital to the core business. Maintaining a sizable cash position will maximize our optionality and keep us strong against the challenging economic backdrop. If a strategic asset or complimentary business becomes available in the right price range, we want to be able to explore those acquisitions.

As a result of these steps and our planning, we believe GameStop is well positioned heading into 2023. We stand to benefit from our strong cash position, lack of debt, healthy inventory mix, shrinking cost structure, and disciplined focus on categories where we have competitive positioning. We are also fortunate that the company's exposure to digital assets has been very modest thanks to risk management efforts. The company has proactively minimized exposure to cryptocurrency risk throughout the year and does not currently hold a material balance of any token. Although we continue to believe there is long-term potential for digital assets in the gaming world, we have not and will not risk meaningful stockholder capital in this space.

Let me now turn to our financial results for Q3. Net sales were $1.186 billion for the quarter, compared to $1.297 billion in the prior year's third quarter. Approximately $50 million of the decline is attributable to FX. Sales attributable to new and expanded brand relationships remained strong. Likewise, sales in the collectibles category remained strong on a year-to-date basis.

SG&A was $387.9 million or 32.7% of sales compared to $421.5 million or 32.5% of sales in last year's third quarter. Notably, SG&A as a percentage of revenue was down on a sequential basis from 34.1% in Q2 of this year. We've also taken additional steps in recent weeks to further reduce SG&A on a go-forward basis now that significant improvements have been made to the core business. We reported a net loss of $94.7 million, or 31 cents per diluted share, compared to a net loss of $105.4 million, or 35 cents, in the prior year's third quarter. As with SG&A, we saw a healthy reduction in our net loss on a sequential basis versus Q2 of this year.

Turning to the balance sheet, we ended the quarter with cash, cash equivalents, and marketable securities of $1.042 billion. We continue to maintain a strong cash position while sustaining strong in-stock levels for the busy holiday season. With respect to inventory, we have strengthened our position in recent months by divesting a small percentage of merchandise that was acquired late in 2021 and early in 2022. Divestitures occurred in categories seeing soft customer demand over multiple quarters. Inventory was $1.131 billion at the close of Q3 compared to $1.141 billion at the close of the prior year's third quarter. At the close of the reporting period, 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.

Capital expenditures for the quarter were $13 million, up $0.5 million from last year's third quarter. We anticipate CapEx will remain at similar or reduced levels now that the company has largely completed its period of heavy investment. In the third quarter, cash flow provided by operations was $177.3 million, compared to an outflow of $293.7 million during the same period last year. In terms of an outlook, we're not providing formal guidance

at this time.

It is worth reiterating, however, that our goal is to achieve profitability in the near term.

I want to finish by reiterating what we've said in the past. We're attempting to accomplish something unprecedented in the retail sector. We're seeking to transform a legacy brick and mortar business that was on the brink of bankruptcy into a retailer that meets customers' needs through our stores, e-commerce properties, and emerging sales channels. This path carries risk and is taking time, but it is the path we are on. With that said, GameStop is a stronger business today than at any time in the recent past. I'll leave it there for this quarter. Thank you.

Executive Name (Matt Furlong, CEO): This concludes today's conference. Thank you for your participation. You may now disconnect.