GameStop Corp. (NYSE:GME) Q3 2019 Earnings Conference Call - Final Transcript

Dec 10, 2019 • 05:00 pm ET


GameStop Corp. (NYSE:GME) Q3 2019 Earnings Conference Call - Final Transcript


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George E. Sherman

next several quarters until the launch of the next-generation consoles. At this stage, we've entered the commoditization phase of the console cycle, where promotional pricing is driving sales and if you're out shopping or doing store checks over Black Friday or Cyber Monday, you likely saw clear examples of the discount stands. Given significant promotional stands along with the industry dynamics highlighted by unprecedented declines, we are revising our outlook for the year down from prior expectations. While the near-term top-line environment remains a challenge, we do not believe these results are indicative of what we would expect for the business in the long-term.

Despite the top-line results for the quarter and their impact on our outlook for the remainder of the year, we do have several positive developments that I want to highlight. First, we will share with you our commitment to evaluate every aspect of our business and take decisive action to address underperforming areas of our business. In that light, we begun the process to wind-down our operations in the Nordics region of Europe, including operations in Denmark, Finland, Norway and Sweden. While this will take several months to complete, we believe this effort will yield roughly $15 million in EBITDA run rate improvement.

Second, I work to optimize the business model. Specifically, our efforts to reduce inventory and turn faster, resulted in third-quarter ending inventories down over 30% compared to last year. These initiatives are enabling us to generate strong cash flow, despite the sales decline. Third and directly tied to our conviction and the strategies we are pursuing, we invested over $115 million in the quarter to repurchase over 22 million shares. This reflects our commitment to returning capital to shareholders and brings our total investment and buybacks for the third quarter of this year to $175 million, our repurchase of over one-third of our shares outstanding at the beginning of the year.

You'll hear more about each of these throughout our call today. But I wanted to quickly highlight them before discussing our progress against each of our strategic pillars and our performance for the quarter.

Despite the overall sales results, we do have several things within our business that are doing well. Even within new hardware, where we have recent innovations such as Nintendo Switch and Switch Lite, we are seeing strong double-digit sales growth, where consumer interest continuing to increase across that platform. We can see the strength of the Switch platform reflected in our recently implemented merchandising floor-sets across the chain, and in particular across our Black Friday and Cyber Monday offerings. As we highlighted the product and gave a high profile placement across our omnichannel platform. In software, despite fewer titles and an underperforming title slate compared to last year, where we do have strong titles GameStop continues to deliver market share leading performance.

For example, the success of Call of Duty: Modern Warfare launch has been well publicized. And our associates galvanized behind the release that was exclusive in-store