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
James Bell

in late 2020. And as such, we expect our year-over-year sales to be down over the next three quarters or four quarters, reflecting the end of that cycle.

Compounding this negative impact on sales is the fact that console makers have confirmed to launch earlier than they have in the past. We anticipate that this will lead to much lighter title slate through the rest of 2019 and early 2020, given the end of the cycle timing for the current consoles. As a result, at this time, we expect a percentage decline of comparable same-store sales for 2019 to be in the low-teens, which includes a difficult comparable sales challenge from last year as we are up against blockbuster titles like Red Dead Redemption 2, 2018's number one volume title, without a comparable launch in 2019.

While we expect the current top line trend to continue through the first half of 2020, we remain focused on the strategic initiatives George outlined, which we believe will position us for long-term profit and cash flow expansion. As a result, our results over the coming few quarters will not be sales-driven, but we believe will reflect the strengthening of our core business with expanding margins, disciplined expense management and capital expenditures, and finally, strong and growing free cash flow. In that light, we expect the overall annualized run rate of our profit improvement initiatives to be over $200 million in 2021, as we execute on them throughout the rest of 2019 and through 2020.

An important evolution for any retailer is the optimization of its portfolio. We are no different. After years of growth, both organic and inorganic, we maintain a very profitable store base with over 95% of our more than 5,700 worldwide stores posting four-wall positive EBITDA. While that is an impressive statistic, we have a clear opportunity to improve our overall profitability by de-densifying our chain. That work is well underway.

We are on track to close between 180 underperforming stores and 200 underperforming stores globally by the end of this fiscal year. And while these closures were more opportunistic, we are applying a more definitive analytic approach, including profit levels and sales transferability that we expect will yield a much larger tranche of closures over the coming 12 months to 24 months. We believe these actions will significantly add to our profit improvement run rate with little to no cash expense, as our average lease life is approximately two years.

In addition to optimizing our store portfolio, we are continuing to evaluate strategic and operational alternatives for certain unprofitable operating subsidiaries or business units, primarily within our international segments. We will provide more information on that work in the future.

Historically, there is a fair amount of seasonality in our business and our working capital throughout any fiscal year. In that light, after adjusting for the timing of certain invoice payments related to holiday 2018 inventory that were paid after the end of the fiscal year last year, we