GameStop Corp. (NYSE:GME) Q2 2019 Earnings Conference Call Transcript

Sep 10, 2019 • 05:00 pm ET

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GameStop Corp. (NYSE:GME) Q2 2019 Earnings Conference Call Transcript

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Presentation
Executive
George Sherman

is essential for the future and increasing profit productivity. We have an expansive and profitable store base, with 95% of our stores posting four-wall EBITDA positive results. However, we know we have the opportunity to do even better and expand profitability by de-densifying our store footprint in some markets.

We are committed to both closing loss-making locations, as well as maximizing profit productivity from capturing sales and profit transfer in stores with overlapping trade areas. We believe that store de-densification will be materially accretive to the overall business model, and remembering that our average lease life is only two years, we can approach these strategic decisions with limited, if any, cost implications.

In total, we believe these operating profit improvement initiatives will substantially exceed the previous management team's initial $100 million target that was communicated earlier in the year. We believe the total annualized run rate of our profit improvement initiatives will be in excess of $200 million for 2020 and beyond.

Moving to the second pillar of our strategy, we are committed to creating a social and cultural hub of gaming within each GameStop store, online and within the digital environment. This is especially important as the video game industry experiences significant change from the evolving methods in which customers are consuming video games to the more near-term disruption from the current console cycle coming to an end. We are and have been the leading expert in the industry for decades and have the ability to leverage that position to create an experience that ignites passion before, during and after each transaction.

Not only are we the largest videos sales generator for our hardware and software partners, we are also the video game authority in countless neighborhoods around the globe. This is what makes GameStop unique. There is no other brand better position to be the aggregator of video game products and content, including eSports and digital media, with the deep expertise of our associates to gamers of all demographics worldwide.

As part of this strategy, we have begun testing a series of experiential offerings within the Tulsa, Oklahoma market. Think of this approach as a live laboratory, which will help us define and execute the optimum mix of high-margin immersive experiential gaming content with our existing array of video games and collectibles products. For example, we will try a try-before-you-buy experience was up to 12 gaming days, eSports-focused comparative gaming content delivery, a collectibles-focused experience, all supporting physical and digital video gaming accessories transactions.

Of note, this is a very controlled and disciplined test that fits well within our capital expense budget for fiscal 2019, and any rollout from the test will not be implemented in every store in the chain. It's still early, and we will share some of these findings with you as we progress in the coming quarters.

While we believe these tests along with our other initiatives are necessary to define and add new high-growth and high-margin revenue streams for our business, we remain