GameStop (GME) Q2 2022 Earnings Name Transcript

September 8, 2022

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GameStop (GME -4.38%)
Q2 2022 Earnings Name
Sep 07, 2022, 5:00 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Good afternoon, and welcome to the GameStop second quarter 2022 earnings convention name. Please word that sure statements made in the course of the name represent forward-looking statements made pursuant to the protected harbor provisions of the Non-public Securities Litigation Act of 1995 as amended. Such forward-looking statements are topic to each recognized and unknown dangers and uncertainties that might trigger precise outcomes to vary materially from segments. These dangers and uncertainties are described within the firm’s earnings press launch and its filings with the SEC.

The forward-looking statements immediately are made as of the date of this name, and the corporate doesn’t undertake any obligation to replace the forward-looking statements. I’ll now flip the decision over to GameStop’s CEO, Matt Furlong.

Matt FurlongChief Govt Officer

Thanks, and good afternoon, everybody. I need to start by reiterating the deep appreciation we’ve for our stockholders’ unmatched enthusiasm, ardour and assist. As we work to rework GameStop, these stay distinctive tailwinds for us, ones we at all times acknowledge and worth. I additionally need to take this chance to thank everybody throughout the group for bringing continued focus and depth to our mission, notably throughout an energetic Q2 that represented a transitional quarter for us.

Earlier than protecting the quarter’s particular initiatives and outcomes, I need to present a high-level replace on the place we have been and the place we’re trying to go as our transformation progresses. When our board started turning over early final 12 months, GameStop was saddled with vital debt, decaying methods, restricted worker depth and a bunch of different points. For this reason we spent the second half of 2021 and the primary half of 2022 making up for years of underinvestment in modernizing the enterprise. The upshot is we now have a extra diversified product catalog, strengthened success community, improved tech stack and e-commerce presence and fortified company infrastructure.

Thanks to those enhancements, together with our SAP implementation, we’re in a position to begin specializing in a brand new set of priorities that embody attaining profitability, launching proprietary merchandise, leveraging our model in new methods and investing additional in our shops. Throughout Q2, we took steps to assist every of those new priorities. With respect to pursuing profitability within the coming quarters, we rightsized company expenditures and headcount following a interval by which the corporate had employed greater than 600 new people. These actions, mixed with the elimination of onetime bills in Q1, contributed to a 14.3% discount in SG&A.

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We have completed this whereas bettering our e-commerce expertise and decreasing free delivery to clients to at least one to 3 days. We will retain a powerful give attention to price containment and proceed selling an possession mentality throughout the group. On the product entrance, our enhanced tech capabilities allowed us to observe the launch of our digital pockets with the launch of our new market that permits players, creators, collectors and others to purchase, promote and commerce NFTs. The launch of our NFT market helps GameStop’s pursuit of long-term progress within the cryptocurrency, NFT and Web3 gaming verticals, all of which we count on to be more and more related for the collectors and players of the long run.

Relating to accretive partnerships, we have been actively exploring alternatives to strengthen GameStop’s choices and improve model visibility. We’re constructing on the momentum established by our beforehand disclosed partnerships with organizations like Immutable X and Loopring, whether or not or not it’s by new relationships that assist our commerce enterprise, blockchain group or each. The deal we simply introduced with FTX is a byproduct of our commerce and blockchain groups working collectively to ascertain one thing distinctive within the retail world. Lastly, in terms of investing in our shops, we rolled out an improved compensation mannequin for U.S.

retailer leaders. Every of those retailer leaders is being given a time-based fairness grant of $21,000 that vests over three years, in addition to the chance to earn further compensation each quarter by way of a performance-based fairness grant. In conjunction, we’re elevating hourly pay for sure retailer associates. These steps had been taken to assist us improve retention and recruitment of passionate, high quality expertise.

After we take into consideration the GameStop of the long run, we count on our shops to assist us keep direct connectivity to clients and maintain localized order success capabilities throughout extra geographies. For this reason, whilst we proceed evolving our e-commerce and digital asset choices, storage will stay a crucial piece of the corporate’s worth proposition. Taken collectively, we consider the aforementioned steps will help us attain profitability within the coming quarters and produce further income progress over the long run. Let me now flip to our monetary outcomes for Q2.

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Web gross sales had been $1.136 billion for the quarter, in comparison with $1.183 billion within the prior 12 months’s second quarter. Gross sales attributable to new and expanded model relationships remained robust. It is usually value noting that gross sales attributable to collectibles, which is a phase we intend to develop over the long run, had been $223.2 million for the quarter, in comparison with $177.2 million within the prior 12 months’s second quarter. SG&A was $387.5 million or 34.1% of gross sales, in comparison with $378.9 million or 32% of gross sales in final 12 months’s second quarter.

As famous, we had a powerful discount in SG&A on a sequential foundation versus Q1 of this 12 months, and we’re taking additional steps to scale back SG&A on a go-forward foundation. We reported a web lack of $108.7 million or $0.36 per diluted share, in comparison with a web lack of $61.6 million or a loss per diluted share of $0.21 within the prior 12 months’s second quarter. There have been no main onetime transformation transaction or associated prices in the course of the interval. Turning to the steadiness sheet.

We ended the quarter with money and money equivalents of $908.9 million. We proceed to keep up a large money place even whereas investing in stock to maintain robust in-stock ranges and mitigate the total impression of lingering provide chain points. On the shut of the second quarter, we had no borrowings beneath our ABL facility and no debt apart from a low-interest, unsecured time period mortgage related to the French authorities’s response to COVID-19. Whole liabilities in comparison with the second quarter of final 12 months had been down $237.8 million.

Capital expenditures for the quarter had been $20.5 million, up $7 million from final 12 months’s second quarter, reflecting investments in our expertise and enterprise methods. We anticipate capex will stay at modest ranges. Within the second quarter, money stream from operations was an outflow of $103.4 million, in comparison with an outflow of $11.5 million throughout the identical interval final 12 months. Stock was $734.8 million on the shut of the quarter, in comparison with $596.4 million on the shut of the prior 12 months’s second quarter.

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When it comes to an outlook, we’re not offering formal steerage right now. It’s value noting, nonetheless, that our ongoing engagement with key suppliers is positioning us to obtain stronger provide of next-generation consoles within the months forward. I need to end by reinforcing that we’re working to perform one thing unprecedented in our business, rework a legacy brick-and-mortar retailer right into a technology-led group that meets clients’ wants by shops, e-commerce properties in each digital marketplaces and new on-line communities. Our path to turning into a extra diversified and tech-centric enterprise is one which clearly carries threat and can take time.

This stated, we consider GameStop is a a lot stronger enterprise than it was 18 months in the past. I’ll go away it there for this quarter. We look ahead to driving extra progress in Q3. Thanks.

Questions & Solutions:

Operator

[Operator signoff]

Period: 0 minutes

Name contributors:

Matt FurlongChief Govt Officer

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