Upload
dohanh
View
216
Download
1
Embed Size (px)
Citation preview
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page1of23
Gamestop(GME)EarningsReport:Q22015ConferenceCallTranscriptThefollowingGamestopconferencecalltookplaceonAugust27,2015,05:00PMET.Thisisatranscriptofthatearningscall:
CompanyPart icipants
PaulRaines;GameStopCorporation;CEORobLloyd;GameStopCorporation;CFOTonyBartel;GameStopCorporation;COOMikeMauler;GameStopCorporation;President-InternationalMikeBuskey;GameStopCorporation;President-USStoresMikeHogan;GameStopCorporation;EVP-StrategicBusiness
OtherPart icipants
ColinSebastian;RobertW.BairdandCompany,Inc.;AnalystBrianNagel;OppenheimerandCo.;AnalystMikeOlson;PiperJaffrayandCo.;AnalystArvindBhatia;Sterne,AgeeandLeach,Inc.;AnalystCurtisNagle;BofAMerrillLynch;AnalystDavidMagee;SunTrustRobinsonHumphrey;AnalystSethSigman;CreditSuisse;AnalystScottTilghman;B.RileyandCompany;Analyst
MANAGEMENTDISCUSSIONSECTION
Operator :
Goodday,everyone.WelcometoGameStopCorporation'ssecondquarter2015earningsconferencecall.Asupplementalslidepresentationisavailableatinvestor.GameStop.com.Attheconclusionoftheannouncement,aquestion-and-answersessionwillbeconductedelectronically.
(OperatorInstructions)
IwouldliketoremindyouthatthiscalliscoveredbytheSafeHarbordisclosurecontainedinGameStoppublicationdocumentsandisthepropertyofGameStop.ItisnotforrebroadcastorusebyanypartywithoutpriorwrittenconsentofGameStop.
Atthistime,IwouldliketoturnthecallovertoPaulRaines,CEOofGameStop.Pleasegoahead.
PaulRaines (CEO):
Thankyou,Operator,andwelcometothesecondquarterearningscallforGameStop.Asalways,wearegratefultoourassociatesaroundtheworldfortheirperformanceanddedicationtocustomersthisquarter.TheyarethesecrettoGameStop'ssuccess.
JoiningmetodayonourcallareRobLloyd,ChiefFinancialOfficer;TonyBartel,ChiefOperatingOfficer;MikeMauler,PresidentofInternational;MikeHogan,ExecutiveVicePresidentofStrategicBusiness;MikeBuskey,PresidentofUSStores;andMattHodges,ourVicePresidentofPublicandInvestorRelations.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page2of23
Wehadagreatquarter.Earningspersharegrowthwaswellaheadofconsensus,growing41%year-over-year.Ourearningspersharegrew41%ontopof144%growthinlastyear'ssecondquarter.
Socompsarestronginthevideogamebusiness,delivering8.1%ontopoflastyear's22%comp.DigitalgrowthwithoutFXwas17.5%andpreownedgrowthwithoutFXwasover5%.
TechnologyBrandsgrewtheirstorecountbyanimpressive182stores,nowstandingat731stores.SpringMobileisnowAT&T'slargestdealerandouracquisitionpipelineisfull.RobandTonywillprovidecoloronthevideogamebusinessandtheTechBrandsmetrics.
Duringthequarter,weclosedonouracquisitionofGeeknetandtheThinkGeek.combrand.WeareveryexcitedaboutthisopportunityandhavespentsignificanttimewiththeGeeknetteamontheintegrationplan.MikeHoganwillsharesomeearlycoloronourprogress.
OurCollectibles,orlootbusiness,hadaverygoodquarter.WhatwasonceanexperimentinAustraliaalittleovertwoyearsagohasturnedintoaglobalbusinessthatisfeedingrapidgrowth.Asweseeopportunities,wewillcontinuetoremodelGameStopstorestogivemorelinearfootagetolootmerchandiseandlesstovideogames,providingusagreatcompetitiveleverforthevideogamepublishers.
IntegrationwithThinkGeekwillonlyhelpthisbusiness.MikeMaulerwillupdateyouonourglobalprogress.
Lastquarter'scapitalallocationwasagaindisciplined,aswepaidourdividendof$0.36pershareandboughtback$60.7millionworthofourstock.
Takingamomenttostepbackandlookatthebusiness,youhavetorecognizethatwehaveaknackforidentifyinganddevelopingopportunitiesintransformationaltechnologyandbusinessacquisitionsthatarepayingoffforshareholders.OurearlyandrapidinvestmentsinrefurbishingmobiledeviceshasturnedintoourTechnologyBrandsunit,thefastestgrowingAT&TandAppledealerinAmerica.
OurabilitytoadaptagreatideafromAustralia,adjustittoAmericanconsumersandrollitquicklyhasturnedintoourstronglineupoflootandcollectiblesproducts.Andourstrongbalancesheetallowsustocapitalizeonthissuccessbyrollingupgreatassets,likeGeeknet.
OurGameStopTechnologyInstitute,announcedinMarchof2014,hasdevelopedanin-storetabletthatisalreadyrollingoutnationallyandwehavedevelopedbeaconsolutionsthatwillsoonbeimplemented,aswell.OurdigitalsolutionsofDLC,Steam,full-gamedownload,KongregateandDigitalGameInformer,amongothers,arecontinuingtogrowandwillprovideanice$1billionbusinessthisyear.UnderpinningallofthesegreatideasisgreatexecutionandthePowerUprewardsprogram.
Itiscleartousnowthatwearefindingnewusesforourbrickandmortarstores,aswellasourwebsites.Andbehindthemisprobablyourbiggestasset,thecustomerdatabehindallourtransactions.
Ourabilitytodiversifyourbusinesshasbeenthecorrectstrategy,buildingonourleadershipinvideogames,whileexploitingourcoretogrowrapidlyindigital,mobile,andcollectibles.Inthemostrecentquarteralone,thosenewbusinessesaccountedforalmost23%ofourgrossprofitandweexpecttoseethatgrow.
Youshouldnotethatour32.9%grossmarginrateforthesecondquarterwasamongthehighestinourhistoryandgrossprofitdollarswereacompanyrecordforthesecondquarter.Othercategories,likepreowned,mayfluctuatedependingonmixandpromotions;butourabilitytodiversifyintoricherlinesofbusinessandproductsisallowingustoincreaseprofitability.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page3of23
WeprovidedguidanceforQ3thatisslightlydowntomodestlyupandincreasedourfullyearguidancebythesharecountboughtbackinthequarter.Welearnedinourinvestorsurveythatsettingachievabletargetsisimportanttoyouandexpecttocontinuedoingso.
WecontinuetospendalotoftimeinternallyandwithourBoardonourstrategicplan,assessingthesizeofmarketsandtheiradjacencytoourcorecustomerbase.Weseekmoreopportunitiestoleverageourcorecompetenciesofrealestate,humantalent,capital,buy,sell,trade,andPowerUprewardsintoattractivenewsegments.Ahighrateofchangewillcontinuetodefineusandwillprotectourfamily.
IwillnowturnthecallovertoRob.
RobLloyd (CFO):
Thanks,Paul.Goodafternoon,everyone.I'llstarttodaybycoveringthehighlightsofoursuccessfulsecondquarterandthenI'lldiveintosomecoloronthequarter.
Overallresultsexceededourexpectationsagainthisquarterintermsofrevenuegrowth,samestoresales,operatingmargin,netincome,andEPS.Salesincreased1.8%inthequarter,or7.4%excludingFX.Comparablestoresalesincreased8.1%,exceedingthehighendofourguidancerangebyover500basispoints.
Grossmarginsexpanded110basispointsonthestrengthofgrowthandmarginexpansioninMobileandgrowthinCollectibles,leadingtorecordsecondquartergrossprofitof$580.5million.Adjustedoperatingearningsincreasedover65%forthequarter,drivenbyoursalesgrowthinCollectiblesandmarginexpansioninMobile.
Duringthequarter,weincurredone-timechargesof$9.1million,primarilyrelatingtotheGeeknetacquisitionandTechBrandsexpansion,whichincludedRadioShackstoreacquisitioncosts.
SG&Aadjustedtoexcludechargesasapercentageofsaleswas27.3%,downslightlyfrom27.5%intheprioryearquarter,despiteinvestmentsupportingTechBrands'expansion.Interestexpenseincreased$4.5millionduetothe$350millionindebtoutstanding.Adjustednetincomeincreased34.6%andadjustedEPSincreasedover40%.Foreigncurrencymovesreducedsalesnearly$100million,buthadminimalimpactonEPS.
Nowlet'slookatsalesandmarginduringthequarterforsomeofthecategories.Hardwaresalesdecreased2.2%,butincreased3.7%excludingFX,becauseofstrongdemandsforthePlayStation4andXboxOne.IntheUS,wesold42%morenextgenconsolesthaninthesecondquarterof2014,leadingtotheoutperformanceinthecompresults.
Softwaresalesdeclined6.0%,butincreased0.7%excludingFX,asweovercamethecomparisontoWatchdogsandMarioCart8fromlastyearwithstrongperformanceonWitcher3andBatmanArkhamKnight.Preownedrevenuegrew0.5%,orplus5.1%excludingFX,aswesawcontinuedgrowthinnextgenpreownedhardwareandsoftware.
Preownedmarginrateswere46.0%,down100basispointsfromtheprioryear,duetohigherrefurbishmentcostsonanincreasedmixofhardwareandaccessoriestradeswhichweredrivenbythesuccessfultrade-upcampaignsweranduringthequarter.
Digitalreceiptsonanon-GAAPbasisgrew11.1%,or17.5%excludingFX,to$199millionforthequarter.Aswesaidintherelease,growthwasledbysalesofDLCforWitcher3andBatmanArkhamKnight.
GAAPdigitalrevenuesdeclined20.5%year-over-year,duetoFXimpactandbecauseofaccountingforKongregateonanetcommissionbasis,aswediscussedinthefirstquartercall.Mobilerevenues
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page4of23
increased26.9%,drivenby62.3%growthinourTechnologyBrandsrevenues,andgrossmarginsincreasedfrom36.1%inQ2lastyearto45.4%.
Aswestatedonthelastcall,aswecontinuetorapidlyexpandourTechBrandsfootprint,therewillbeupfrontinvestmentcostsinordertoensuresuccessfulopenings.
Thiswillimpactshort-termoperatingresults,butwillultimatelyprovidesustainableprofitsfortheCompany.Duringthesecondquarter,weinvestedover$5millionforthe89storesweopenedandforthe90to100storestobeopenedduringthethirdquarter.Q2'sTechBrandsstoregrowthalsoincludedtheacquisitionofthreeAT&Tresellerstotaling93stores,mostofwhichwereacquiredattheendofJuly.
RevenuesintheOthercategoryincreased37.7%to$99.4million,or48.5%growthexcludingFX,aswecontinuetoexpandourCollectiblesbusiness.
Someotherdatapointsareasfollows.Weclosedanetof33videogamestoresaroundtheworld.AsPaulmentioned,weclosedtheacquisitionofGeeknet,includingtheThinkGeekbrandande-commercesite.Theacquisitioncostwas$126millionnetofcashacquired.ThinkGeekwillbeaccretiveinthesecondhalfoftheyear.
Inthequarter,werepurchased$60.7millioninstock,or1.41millionsharesatanaveragepriceof$43.04.Wesurpassedthe$1.8billionmarkincumulativebuybacks,withover71millionsharesacquiredatanaveragepriceof$25.28.Weremaincommittedtoourbuybackprogramandareontracktomeetour2015objectiveofrepurchasingatleast$200millionofstock.
Wealsopaidthesecondquarterdividendat$0.36pershare.Inthelast12months,we'vegeneratedapproximately$500millioninfreecashflowandhavereturned$466millionindividendsandbuybacksandhaveusedanadditional$247milliononacquisitions.
Nowlet'smoveontothirdquarterguidance.Asstatedinourearningsrelease,weexpectsamestoresalestorangefromplus1%toplus4%andrevenuegrowthtorangefromflattopositive4%.Changesinforeigncurrencyratesareexpectedtoagainnegativelyimpactrevenuesbyapproximately$100millionwhencomparedtothethirdquarteroflastyear.
Againthisquarter,weexpectmonthlysoftwareresultsfromNPDtovarydramatically.TheAugusttitlelineupislighterthanlastyear,withMaddenbeingtheonlycomparison.InSeptember,wewillbecomping(Inaudible),whichisaverytoughoverlap,asthisyear'sversionisonlyanexpansionpack.Assassin'sCreedandHaloshouldgiveusafavorablecompinOctober.
Duetoourover-indexingandmarketshareonDestinyfromlastyear,weareexpectingnewsoftwarerevenuestobedowninthethirdquarter.AccordingtoNPD,intheUSnearly3millionunitsofDestinyweresoldacrossfourplatformsinthethirdquarteroflastyear.Thisquarter'smostanticipatedtitleisexpectedtobeHalo5,whichlaunchesverylateinthequarterandwillonlybeavailableononeplatform.
Wealsoexpectaslightdeclineinthepreownedmarginrate,asthemixshiftstonextgenfrompriorgenandaswecontinuetoinvestinrefurbishmentofpreownedconsolestosupportsalesgrowth.Ourrepaircostsremaincomparable,whilepreownedhardwarepricesdeclineovertime.Also,asareminder,salesofnextgenpreownedunitshavealoweroverallmarginthanpriorgenunitsduetohighertrade-inprices,whichistypicalinanewconsolecycle.
Weareforecastingpreownedmargintobebetween44%and46%forthebalanceoftheyear.Overall,weexpecttoexpandgrossmarginscomparedtotheprioryearquarter,asotherareasofourbusiness,suchasMobileandCollectibles,positivelycontributetoourprofits.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page5of23
DespitetheupfrontinvestmentstosupportthestoreopeningswhichIdescribedearlier,operatingearningsforTechBrandsinthethirdquarterareforecasttobecomparabletotheprioryearquarterandareexpectedtogrowsignificantlyinthefourthquarter.
Weareguidingearningspershareforourthirdquartertorangefrom$0.53to$0.60pershare.Weareexpectinga37%taxrateforthequarter,whichishigherthanwehadinthethirdquarteroflastyear,andwewillhaveapproximately$0.02pershareinadditionalinterestexpense.Youshouldmodel106.7millionsharesoutstandingforthethirdquarterand107millionforthefullyear,basedonbuybacksthroughtheendofthesecondquarter.
Forthefullyear,totalrevenuesarenowexpectedtorangefromflattopositive5%andsamestoresalesarenowexpectedtorangefrompositive2%topositive7%.Afterconsideringbuybackswehavecompletedthusfar,weareraisingourfullyearguidancefromarangeof$3.63to$3.83persharetoahigherrangeof$3.66to$3.86pershare.
IwillnowturnitovertoTonyforhiscomments.
T onyBartel(COO):
Thanks,Rob.
Ourretailoperationshadanotherstrongquarter,aswecontinuetocapitalizeonouruniquespecialtyservicemodelandgrowournew,preowned,anddigitalvideogamebusiness,aswellasourTechnologyBrandsbusiness.Webelievethatservicemattersandthatourbusinessesareexpandingbecausewemeettheneedsofourcustomersbetterthananyofourcompetitors.
Innewvideogames,weagainincreasedshare,asourUSsoftwaregrew1.2%versusadeclineintheoverallmarket.Oursoftwareshareincreasedby1point,andwecontinuetoselloverone-halfofallXboxOneandPS4software.
OurUSnewhardwaredollarsalesgrew13.6%duringthequarterversusadeclineintheoverallmarket,resultingin4pointsofhardwaremarketsharegainduringthequarter.Thecomps[for]launchremainedstronginits22ndmonth,aswehavetripledthenumberofPS4unitsthatweresoldversusthePS3launchandhavenearlydoubledtheXboxOneunitsversustheXbox360launch.
Ourpreownedbusinessoutpacedthenewbusinessandgrewduringthequarter,aswelogged0.5%growthafterFXand5%growthpriortotheimpactofFX.Asisnormalduringthispartofthelaunchcycle,ourincreasingmixofnextgensalesisdrivingthisgrowth.
Wearealsoinagoodinventoryposition,asourpreownedinventorydollarsareup6%overthesameperiodlastyear,drivenentirelybynextgenhardwareandsoftwaregrowth.Sowearewellpoisedtoachievemid-singledigitglobalpreownedgrowthforthefullyear.
Lookingatdigital,weagaindrovedouble-digitgrowthinnon-GAAPdigitalreceipts,whichincreased17.5%beforeFXand11.1%afterFX.Thisgrowthwasdrivenmainlybytheincreaseindownloadablecontentthatwassoldwithnewgamelaunches.Kongregatewilllaunchsevennewmobilegamesthisquarterandisontracktogrowmobilegamingrevenuesbyapproximately50%forthefullyear.
ItisimportanttonotethatduringtherecentreleaseofEA'sMadden16,weworkedwithourpartnerstoofferafreephysicalgamewiththepurchaseofeitheraPS4orXboxOneanddidnotcarrytheXboxOnedigitalbundle.Weexpectthatifagameisprovidedasapromotionaliteminahardwarebundle,GameStopwillseemoreofthesephysicaloffersthandigitalpack-insonupcomingthird-partyreleases.
InourTechBrandssegment,wecontinuetoextendoursalesleadershipofAT&TandApple'sbrands
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page6of23
inahighservicemanner,asourTechnologyBrandsdivisionisexperiencingexplosivegrowth.Wecontinuetoexecuteourstrategyofrollingupsmallerdealerstoimproveproductivityandleveragingourrealestateexpertiseinaddingnewlocations.
OurTechnologyBrandsdivisionhashadaveryproductivesummer,openingoracquiring182storessincetheendofQ1.OurstorecountasoftheendofQ2standsat731stores.Thisrepresentsa129%increaseinstorecountversustheendofQ22014.
Whilewestillplanonaddingbetween450to550TechnologyBrandsstoresthisyear,thebulkofourinvestmentspendingisbehindusandweanticipateseeingstronggrowthinthebackhalfoftheyear,culminatinginourTechnologyBrandsprofitsgrowingbetween40%and50%forthefullyearwithoutinfrastructureinvestmentcostsand10%to20%aftersuchinvestmentcosts.Thisalsosetsusupforstronggrowthin2016andbeyond.
OurSpringMobiledivisionisnownotonlythelargestandfastestgrowingAT&Tdealer,buttheycontinuetobethemostproductivedealer,aswell.JasonEllis,ourSeniorVicePresidentofTechnologyBrands,andhisteamhavedoneagreatjobofgrowingtheirbusinesswhilemaintainingahighservicestandard.WearealsothelargestandfastestgrowingAppleauthorizedresellerandatopfiveCricketdealer.
InearlyAugust,wealsobegansellingDirecTVinallofourSpringMobilestores,sowearenowofferingafulllineofAT&Tproductsandservicesinallofthesestores.Weareconfidentinourspecialtyretailexpertiseacrossallofourbrandsandoptimisticaboutcontinuedgrowthinthebackhalfoftheyearandin2016.
Finally,weleavethisweekendforourannualstoremanagersconferenceinLasVegas,whichwillboastapproximately6,000leadersfromallofourcompaniesandfromaroundtheworld.Wewillhavetopleadersfromallofourpartnerstalkingdirectlywithourfieldleadersabouttheirnewestinnovationsandtheirplansforgrowth.
Themanagerswillalsogethands-onexperienceonthelatestinnovations,mostofwhichhaveneverbeenseenbythepublic.Thisinvestmentensuresthatwewillhavetheknowledgeablesalesteaminourindustriesandallowsustocontinuetoprovidebetterservicethanourcompetition.
Withthat,I'llturnitovertoMikeMauler.
MikeMauler (President-International):
Thanks,Tony.Goodafternoon,everyone.
GameStop'sinternationalbusinesseshadastrongsecondquarter,exceedingexpectationswithrecordmarketshareandasignificantimprovementinoperatingearningsoverQ22014,ledbyourAustralianbusinesswitha10.2%samestoresalesincrease.
Drivingourincreaseininternationalearningswasdigitalreceiptgrowthof20%excludingFX,30%e-commercegrowthexcludingFX,drivenbyexpandingwebandstoresales,andthecontinuedexpansionoflicensedmerchandiseandcollectibles,orwhatourcustomersliketocallloot.Inthesecondquarter,lootwasourfastestgrowingsalescategory,withglobalsalesgrowingbymorethan200%versusprioryear,increasingcustomerbasketsizeandexpandingourgrossmarginrates.
ThisrapidgrowthwasdrivenbyourcontinuedexpansionofthecategoryinGameStopstores,improvedmerchandisingandmarketingexpertiseinthecategory,developingexclusiveproducts,leveragingrecentfanevents,suchComic-con,andexcitingnewproductIPsuchasMinions,InsideOut,TheAvengersAgeofUltron,andBatmanArkhamKnight.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page7of23
Asmentionedonthelastearningscall,assaleshavecontinuedtoclimbonthesenewproducts,weareincreasingthespacedevotedtothecategoryinallmarkets.Oursecondwaveofin-storeexpansionwascompletedinthesecondquarter,generatingstrongincreasesinlootsales,aswellasexpandingourcustomerbaseanddrivingincreasedtrafficinourstores.
Finally,duetothesuccessofournewstand-aloneretailconceptdedicatedtoloot,wehavecontinuedtoexpandtheZ ingpopculturepilotinAustraliaandothermarkets.Weendedthesecondquarterwith14storesinAustraliaandonestoreinDublin.
Wewillcontinuetoexpandthisnewconceptinthesecondhalfof2015inothermarkets,includingtheUnitedStates,wherewe'llbeopeningourfirstlocationthisfallunderthebrandnameofThinkGeek,leveragingthepowerfulbrandofourrecentacquisitionofGeeknet.MikeHoganwillprovidemoredetailsonthisnewbusiness.
Theexpansionofthiscategorycontinuestobemetwithveryenthusiasticdemandfromourstoreassociatesandcustomers.Andweexpectcontinuedstrongsalesgrowthinthesecondhalfof2015,drivenbymanyoutstandingentertainmentlaunches,suchasFallout4,HungerGamesMockingjay,andDisney'supcomingblockbusterStarWarsEpisode7,TheForceAwakens,whereweareseeingverystrongpreordersonourexclusivelootofferings.Fortheyear,wearetargetingsalesof$200millionto$250million,notincludingThinkGeek.
Weareexcitedbythisopportunitytodrivecontinuedsamestoresalesandmargingrowthandincreasingrelevancewithourcustomers.Andweexpectthiscategorytogrowtoanover$500millionbusinessgloballyoverthenextthreeyears.AndnowIwillturnitovertoMikeHogan.
MikeHogan (EVP-StrategicBusiness):
Thanks,Mike,andgoodafternoon,everyone.PaulaskedmetocommentbrieflyonourrecentacquisitionofThinkGeek,ourprogresstodateandourplans.
Asdiscussedpreviously,GameStopinitiatedarobustbusinessdevelopmentprocessanumberofyearsagotofacilitateourdiversificationefforts.WeareconstantlyexploringnewopportunitiesthatcanapplycoreGameStopcapabilitiestodrivefuturegrowthandvalue.Geeknet,orThinkGeek,isagreatexample.Weareexpandingintoagrowing$20billionworldwidecategorywherewecanleverageourcorestrengthstodrivenon-gamingrevenue,growthandprofitability.
ThinkGeekprovidesasignificantexpansionofourglobalmultichannelplatform.Wewillutilizetheirproductdevelopmentandlicensingexpertisetobroadenourcollectiblesproductofferinganddeepenourexistingcustomerrelationships,whileaddingnewones.ItisworthnotingthatGameStop'sglobalmultichannelbusinessposted28%growthforthesecondquarter.MultichannelisakeygrowthdriverandweexpectThinkGeektobeabigpartofcontinuingthatgrowth.
Althoughthetransactionclosedameresixweeksago,I'mhappytoreporttheintegrationisofftoagreatstart.Wecontinuetoseegreatvalueinthisacquisition.
IwanttobeginbysharingafewkeyfactsregardingtheGameStopandThinkGeekcustomerbase,whereweseesignificantopportunity.GameStopcustomersareagreatfitforcollectibles.Inarecentsurvey,67%ofGameStopcustomersindicatedtheyplantopurchasecollectiblesinthenext12months,whichisahugeopportunityforustotapinto.
OurPowerUpbasealignswellwiththecategory.45%ofPowerUpmembershavepurchasedcollectiblesinthepastsixmonths,ascomparedtoonly22%forallUSconsumers,andweseeupsideforthesecurrentbuyers.WhilePowerUpmembersarespendingtwiceasmuchoncollectiblesastheaveragecategory
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page8of23
buyer,ThinkGeekcustomersactuallyspendfourtimestheaverage.WeseesignificantupsideforPowerUpmemberspendingandforthecategoryoverall.
ThinkGeekisapowerfulbrand.46%ofPowerUpmembersarealreadyfamiliarwiththebrand,doubletheawarenessforallconsumers.Andfinally,consumersareextremelysatisfiedwithThinkGeek,givingthebrandaveryimpressive68%NetPromoterScore.
Nowafewthoughtsonsynergyandthegrowthopportunity.Onthecostside,wearealreadyseeingsupplychainandpurchasingsynergies,someofwhichwillpositivelyimpactthebusinessinthecurrentfiscalyear.Geeknetpostedan$8millionlossinFY14.Weexpectthebusinesstoalreadybeprofitableforthebackhalfofthiscurrentyear.
Thereareanumberofspecificgrowthopportunitiesweareveryexcitedabout.Webtraffic.WerecentlybeganhighlightingafewThinkGeekproductsonGameStop.comtorefertraffic.GameStopisalreadydrivinggreaterthan10%oftotalThinkGeektraffic.
Profitablecustomers.GameStopprovidesahighvaluecustomerforThinkGeek,similartowhatwehavedonesuccessfullyforKongregatewithmobilegamepurchasers.AswithKongregate,weexpecttrafficfromGameStoptoconvertwellabovetheaverage.
Webinstore.WehaveaddedanumberoftopsellingThinkGeekproductstoourGameStopwebinstoreprogram.ThisallowscustomersinGameStopstorestoorderproductsforhomedelivery.Wejustopenedthisuplastweekandwehavealreadysoldoutofseveralkeyproducts.
Profitablepromotions.GameStopandThinkGeekcollaboratedtoexecutea16thanniversarysalelastweek,whichresultedinThinkGeek'ssecondhighestgrossmargindaythisyear.
Pipeline.Weexpectsignificantgrowthinthebackhalfoftheyear.Weareexcitedaboutmanyexclusivenewproducts,includingafulllineupinsupportofthenewStarWarsmovie.
Internationalexpansion.WearealsoexcitedaboutthepotentialforofferingThinkGeekproductsinourEuropeanstores.Wehavealreadybegunshippingalimitedselectionforthefall.ThinkGeekproductsarecurrentlyavailableinourAustralianstores,aswell.
AsMikeMaulermentioned,wewillhaveseveralThinkGeekstoresopeningintheUSthisfallandwewillfeatureThinkGeekheavilyatourmanagersshowinLasVegasnextweek.Weareverypleasedwiththeprogresstodateandweanticipatemeetingorbeatingourinitialsynergyandgrowthexpectations.
Andfinally,forthoseofyoumakingupyourholidaygiftslistsearly,IwantedtohighlightafewuniqueproductsthatThinkGeekwillbefeaturingoverthenextfewmonths.Don'tmissoutontheStarWarsR2D2bentobox.TheDeathStarwafflemakerissuretobeahit,ormaybeaTeslavacuumtubewristwatchortheeverpopularKnightRiderKitcarcharger.YoucanalllookforwardtoseeingoneoftheseinyourChristmasstocking.
IwillnowturnitbackovertoPaul.
PaulRaines (CEO):
Thankyou,Mike.WewillnowopenitupforQ&A.Operator,pleaseproceed.
QUESTIONS&ANSWERS
Operator :
(OperatorInstructions)
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page9of23
We'lltakeourfirstquestionfromColinSebastianfromRobertBaird.
ColinSebastian (Analyst-RobertW.BairdandCompany,Inc.):
Great.Thanks.Goodafternoonandcongratulationsonaverynicequarter.
PaulRaines (CEO):
Thankyou,Colin.
ColinSebastian (Analyst-RobertW.BairdandCompany,Inc.):
Thanks.Paul,firstIwonderifyoucouldaddsomecolorontheplantoreconfigurethestores,reducethesizeofthevideogamecategoryandhowyou'llmanagethatchange,includingtiming.
Andthensecondly,lookingbackattheQ2numbers,clearlyyousawstrengthinthemobileandconsumerelectronicssegments.Videogameproductsdeclinedalittlebit.Iwonderifyou'reseeinganyimpacttherefromfullgamedownloads.
Andthenlastly,intermsoftheoutlookfortheremainderoftheyear,ifyoucouldmaybetalkaboutsomeofthetitleswhereyou'reperhapsseeingsomeparticularstrengthinpreorders,thatwouldbehelpful.Thankyou.
PaulRaines (CEO):
Thanks,Colin.Letmestartandhandlethefirst,andmaybeTonyandRob,youtwoguysthinkabouttwoandthree,onwhatyouthink.IthinkColin,thewayweseeit,thislootthing,we'vebeenresearchingit,MaulerandtheteaminAustraliahavebeenresearchingitforacoupleyears.Ithasn'tbeenasuddenevent.
Whatwesee,though,isthatthere'satremendousadjacencybetweenpopularcultureandvideogames.Andifyourememberbacktoourfranchisemarketingeffortsthatwedidafewyearsago,weknowthatwhentheconsumerisatalaunch,theywanttogeteverykindofitemtheycanrelatedtothatparticulartitle.Ifyou'reinlineforBatman,youwanttheBatmanT-shirt,thegame,everythingthatthereis.
Andofcourse,there'salwaysbeenalackofthatmerchandise.Sowebelievethattheloothasasignificantplaceinourstores.EvenifIwasheretoday--MikeBuskey'shere,ourstoreleader.Mike,Ithink,whatareyouat,20%overalllootspace,probablygrowing?
MikeBuskey(President-USStores):
Yes.Yes.
PaulRaines (CEO):
It'sgoingtobeabigbiggerpartofourbusiness.Webelieveit'sagoodinvestmentinspace,andcandidly,itgivesusgoodleveragewithpublisherswhohaven'thadthatkindofcompetitionbefore.SoIthinkthat'sagooduseofourspace.Andaslongasit'sproductive,Ithinkweshouldcontinuetodoso.Whataboutmobileconsumerfullgamedownloads.Whowantstotakethatone?
RobLloyd (CFO):
Colin,itsoundedlikeyousaidthevideogameproductsweredown.IwanttocorrectthatandsaythatbeforetheimpactofFX,hardwarewasup,softwarewasup,preownedwasup,accessorieswereupanddigitalwasup.Sowe'reverypleasedwithwhatwesawinthequarterinthecorevideogamebusiness.IthinkI'llturnitovertoTonyforanyspecificsonwhatwesawonthedigitalside.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page10of23
T onyBartel(COO):
Sure.Andwecontinuetoattachataveryhighrate.Forinstance,inMaddenthatjustlaunched,wehada42%attachrateofdigitaltothattitle.Sowehaveaverystrongattachrate,andwecontinuetobe--
PaulRaines (CEO):
That'sveryhigh.
T onyBartel(COO):
Veryhigh.Andwecontinuetobegoodatlettingpeopleunderstandexactlywhattheycanbuyfromadigitalstandpoint.Rememberthatdigitalalwayssuffersfromtwothings,discoverabilityandaffordability.Andwedoagreatjobonbothofthosefronts.
Intermsofthegamesthatwe'reveryexcitedabout,it'sreallythenew,someofthenewIP,oratleastIPthathasn'tbeenoutforalittlewhile.Halo5islaunching,asRobtalkedabout.It'sgoingtobestrongerinthefourthquarterthanitisinthethirdquarter,becauseitlaunchessolateinourthirdquarter.
CallofDutyBlackOps3,we'reexcitedtoseethethree-yeardevelopmentcycle,andsoveryexcitedaboutthatgamecomingout.Fallout4,whichisannounced,isalsoagamethatwe'relookingforwardto,andthenStarWarsBattleFront,whichisawholenewIP.Sowe'rereallyexcitedaboutthesenewtitlesandthat'swhyRob,Ithink,sharedhisenthusiasmaroundthefourthquartergrowth.
ColinSebastian (Analyst-RobertW.BairdandCompany,Inc.):
Thanks.Seeyounextweek.
T onyBartel(COO):
We'llseeyouthen.
PaulRaines (CEO):
Seeyouthere.
Operator :
We'llgonexttoBrianNagelwithOppenheimer.
BrianNagel(Analyst-OppenheimerandCo.):
Goodafternoon.Congratsonanicequarter.
PaulRaines (CEO):
Thanks,Brian.
BrianNagel(Analyst-OppenheimerandCo.):
Acouplequestions.Firstoff,maybesomewhatofafollow-uptothepriorquestion,butonsoftware,therewassomenoisethereaswelookatthatyear-on-yeargrowth,giventhecurrencyfluctuationsandthensomeofthecomparisonswithlastyear'slaunches.
Butaswestepbackfromthatandyoulookattheunderlyingtrendsthere,howwouldyoucharacterizetheunderlyingsoftwaresalestrend,particularlywithrespecttothenewgenerationsalesversuscurrent
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page11of23
andpriorgenerationsales?AndthenI'llhaveafollow-upquestion.
PaulRaines (CEO):
Tony,youwanttotakethatone?
T onyBartel(COO):
Sure.Giventhatthelaunchhasbeenincrediblystrong,weseethemasdefinitelyparticipatinginthat.Clearly,we'vetalkedaboutattachratesareabitlower.
Andwhenyoutakealookatourattachratesonthisincrediblelaunchcyclethatwehave,whenyoulookatourphysicalandourdigitalattachratestogether,we'reveryconsistentwiththepriorlaunch.Sowhenyouthinkaboutthefactthatwe'vetripledtheamountofunitsthatwesoldonthePS4andalmostdoubledtheXboxOne,youseethatwehaveaverystrong--wefeelverygoodaboutthegrowththatwe'reseeing.
PaulRaines (CEO):
Mike,anythingyouwanttosayoninternationalunitgrowthpre-FXversus--
MikeMauler (President-International):
Ithinkwhatwe'reseeingisprettystrongsoftwaregrowthonnewreleases,especiallynewIP.We'vetalkedaboutthatlittlebitof(Inaudible).Andsowhenyoulookatreservationsforthebigtitlesthisfall,we'recontinuingtoseethattrend,wheresomeofthenewIPthat'scomingontothenewgenshasreallygotalotofcustomerexcitementaroundit.
BrianNagel(Analyst-OppenheimerandCo.):
Ithoughtyou'dgivenusinthepasttheactualyear-on-yeargrowthinnewgenerationsoftwaretitles.Isthatsomething--andifyouhave,whatwasthatnumberhereinQ2?
T onyBartel(COO):
ThenumberinQ2was64%.ThisisUSnumbers.So64%forthePS4andXboxOne,anddown56%onthePS3andXbox360.Soclearly,theonethingthatisdifferentinthislaunchcycleversustheotheristhefactthatPS3andXbox360havefallenofffaster,andwe'vesaidthatmultipletimes.
Andsowhatwe'reseeingisveryrobustsalesofPS4andXboxOneoffsetbyaccelerateddeclineinPS3andXbox360,onthenewside.Nowthepreownedsideisobviouslyoutperformingthat,whichiswhyweactuallygrewfasterthannewthisyear,thisquarter.
BrianNagel(Analyst-OppenheimerandCo.):
Theotherquestionwithrespecttoguidance,andPaul,Iheardyourcommentsearly,andyou'vemadethosecommentsbefore,aboutwantingtoputnumbersouttherethatareachievable.Butyoubeatthe--EPSbeatthemid-pointofyourguidancehereby$0.08,andyou'reliftingyourrange,boththetopandbottomend,by$0.03,soit's$0.05thatgoesawaythere.IsthatsimplyGameStopwantingtobeconservativeorshouldwereadsomethingelseintothat?
PaulRaines (CEO):
Iwouldn'treadanythingelseintoit.I'llletRobanswerthemeatofthequestion.Here'sacouplethings.There's,what,75%oftheyearisleft?Alotcanhappenintherestoftheyear.Wedon'tknow.Andnumbertwo,youtoldus,investorstoldusinthesurveythatwe'vedonethatyouwantustosettargets
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page12of23
wecanachieve.Sowe'retryingtosetthosetargets.Rob,whatelsewouldyousayaboutit?
RobLloyd (CFO):
ThepointisIwasgoingtomakewasthatwe'reonlyaquarterofthewaythroughtheearningsfortheyear,andthereisalottobelearnedfromthetitlesastheycomeoutthisfall.Andsowe'realittlecautiousthere.
PaulRaines (CEO):
Ithinkifwhatyou'reworriedaboutis,istherealoomingdigitalscenariooutthere,Iwouldsaynotonethatweknowabout,that'sforsure.Butwe'rejusttryingtobecautiousandtryingtomanageexpectationsandserveourshareholders.
BrianNagel(Analyst-OppenheimerandCo.):
Thankyouandcongratsagain.
PaulRaines (CEO):
Thankyou.
Operator :
We'llgonexttoArvindBhatiafromSterneAgee.
PaulRaines (CEO):
Hello,Arvind.
Operator :
Let'sgotoMikeOlsonwithPiperJaffray.
PaulRaines (CEO):
Hello,Mike.
MikeOlson (Analyst-PiperJaffrayandCo.):
Hello,guys.Goodafternoon.Justhadacouplequestions.IfyoulookattheCollectibles,whichisobviouslydoingwell,growingfast,ifyoulookatthatinisolation,isthegrossmarginforCollectibleshigherthanyourbroadervideogamebusiness,includingsoftwareandnewhardware,preowned?Inotherwords,ifCollectiblescontinuestogrow,isthatafavorablelong-termtrendforgrossmarginornot?
Andthenmyotherquestionwas,lastquarteryoumentionedthatpreownedgrowthwouldacceleratethroughouttheyearandendupoutpacingnewsoftwaregrowthbytheendoftheyear.Itsoundslikethat'sstillthecase,butjustwantedtocheckbackonthat.
RobLloyd (CFO):
Mike,thisisRob.TheCollectiblescategoryismarginaccretiveforusontheoverallbusiness.Sowe'reverypleasedwiththat,andexpandingthatobviouslywillbebeneficialtomarginaswegoforward.Intermsofthepreownedgrowthguidancerelativetonew,Ithinkwesaidbothwouldbemid-singledigitsgrowthfortheyear.
MikeOlson (Analyst-PiperJaffrayandCo.):
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page13of23
Okay.Thanksverymuch.
PaulRaines (CEO):
Thankyou,Mike.
Operator :
Andnowwe'llgotoArvindBhatiafromSterneAgee.
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Sorryaboutthat,guys.Congratulationsfrommyside,aswell.
PaulRaines (CEO):
Thankyou,Arvind.
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Okay.SoIguesseverybody'stryingtofigureoutthebackhalf,lookslikeyouguysaretalkingaboutacceleration.You'vegotagreatlineup.Justwonderingifyouwouldmaybequantifyabitmoreonthenewsoftwareside.IthinkIrememberpreviouslyyouguyshavetalkedaboutmid-singledigitgrowthinnewsoftware,aswell.Ithinkyouconfirmedused.ButIjustwanttobesureyou'restillcomfortablewiththemid-singledigitgrowthnumber,ex-FX,orcourse.That'smyfirstquestion.
Andthenontheusedcategory,Iheardyoutalkabouttheextrarefurbishmentcostsrelatedtothehardwaresideandalsohowthenextgencategoryhasslightlylowermargins.Andsojustyourbackhalfguidanceongrossmargins,Igotthat,buthowshouldwethinkaboutusedmargins,sayfor2016,ongoforwardbasis?
PaulRaines (CEO):
Rob,youwanttotakethesoftwarequestion?
RobLloyd (CFO):
Sure.Withrespecttonewsoftwarefortheyear,we'resayingmid-singledigits.IwillclarifythatwithcontinuedFXmovement,we'resayingmid-singledigitsgrowthforsoftware,newsoftware,andpreowned,beforeconsideringcurrency.
Ontherefurbcosts,lookingforward,andthenextgenversuspriorgen,IthinkthepointthatIwouldmakethereiswe'renotyetreadytogiveguidancefor2016.Butwhatyoucandirectionallyexpectaswemovethroughacycleisthetitleswithinthenextgenage,andthatgivesusgreaterflexibilitywithrespecttothebuyprice,aswellastheretailprices.
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Okay.AndthenImissedthepart,Ithink,Tony,youmentionedontheMaddenbundle,somethingaboutthephysicalbundlewasthere,butnotthedigitalbundle.Canyouclarifythatagain,please?
T onyBartel(COO):
Sure.Weworkedwithourpartners--clearlywhatis--whattookplacelastyearweretherewerealotofhardwarepromotionaloffersthatweregivenwheretherewasapackedindigitalgameanditwaspackedinforfree.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page14of23
Ithinkwearticulatedinthefirstquarterthatwehavemadeitclearwithourpublishingpartnersthatourpreferenceisthatwesell--obviously,GameStop'spreferenceis--wesellthingsatfullpriceandprovidegreatvaluethroughourtradeprogramandthatwehavephysicaldiscs.
Andsowe'veworkedwithourpartnersthatthere'sachannel-wideofferthathad,again,adigitalpack-ininitofMadden.AndweworkedwithbothSony,Microsoft,andEA,withallthreeofthem,andweofferedafreephysicaldiscwhenyouboughteitheraPS4oranXboxOne.Sothat'sclarificationthat'sbakedin.AndthenIsaidthatifinfactthesedocontinue,theplatformholdersdocontinuetoputinfreegamesaspromotionalitems,weanticipatethatatGameStopyouwillseemorephysicalbundlesfromthirdpartiesasopposedtodigitalbundles.
PaulRaines (CEO):
Arvind,thisdigital--ofcourse,we'vehadlotsofconversationsonthesedigitalbundlesandsoforth,right,Tony?ButIthinkwhat'sinterestingtousisthatconsumershaveaprettystrongpreferenceinthis.
AndIthinkwe'veseenthisplayoutinavarietyofwaysoverthepastfewyears.Consumerspreferthosephysicalbundles,becausetheyknowthatthatdischasvalueinthetrade-inprogramatGameStop.Sowechoosenottoparticipateinthedigitalbundles,andTonycreatesthesepromotionswithBobPuzonthatareveryeffective.
T onyBartel(COO):
Anditdidnothurtourmarketshare.Weactuallyincreasedmarketshareonthelaunch.
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Onelastone.Themarginsonmobile,consumerelectronicsisupsignificantly,Ithink900basispoints.Didyoutalkaboutwhatwasthatthisquarter?
PaulRaines (CEO):
Idon'tthinkwedid,didwe,Rob?
RobLloyd (CFO):
ThedriverforthatiswithintheTechBrandsbusinesses.AswecontinuetogrowtheAT&Tbrandedstorecountandthosebusinessesmature,we'recontinuingtoseerichmarginsintherethatstemfromtheconsumer'sshifttotheNextprogramfromAT&T.Sowe'reverypleasedwiththemarginratesandtheimpactthatthat'shavingonthemobilecategory,aswellasthebusinessasawhole.
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Great.Thankyou,guys,andgoodluckfortherestoftheyear.
PaulRaines (CEO):
Thankyou,Arvind.Arewegoingtoseeyouthisweekend,Arvind,orno?
ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):
Absolutely,yes.
PaulRaines (CEO):
Good,good.Seeyouthere.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page15of23
Operator :
We'llgotoCurtisNaglewithBankofAmerica.
CurtisNagle (Analyst-BofAMerrillLynch):
Great.Thanksverymuchfortakingthecallandgoodafternoon.Iguessthefirstquestionintermsoflookingatthesoftwareguidancefor3Q,areyouguysfactoringMetalGearSolidinanywayinthere,justgiventhatit'sgettingprettyphenomenalreviewsandit'saprettyestablishedfranchise,I'dimagineit'sgoingtobeaprettygoodgameforyou.Andthenjustaquickfollow-up.
RobLloyd (CFO):
Yes,wearefactoringthatinandexcitedaboutit.
T onyBartel(COO):
Itshouldbenotedalso,Rainbow6didmoveoutofthequarter,aswell.Soweareexcitedaboutboththosetitles,andsoyouhadthatasatradeoff.
CurtisNagle (Analyst-BofAMerrillLynch):
Andthenjustaquickfollow-up.Justgoingbacktoused,sounderstandthatwasdrivenbynextgen.Butcouldanyofitalsohavebeendrivenbythefactthatthetitlelineupforthisquarterwasalittlelightandmaybeyouhadsomepeople,Iguessvalue-basedgamers,shiftingintousedasaconsequence?
PaulRaines (CEO):
IthinkasRobsharedalotofthat,Ithinkwhereyousawthat,Curtis,wasinourstronghardwareperformanceandaccessoryperformance.That'sexactlywhatyousawisyousawmorepeopleskewingourpreownedbusinesstowardthehardwareside.AndasRobtalkedabout,wehaverefurbcostswhicharetypicallythesameyear-over-yearataslightlylowerretail.
CurtisNagle (Analyst-BofAMerrillLynch):
Okay.Thanksverymuch.Andgoodluckfortherestoftheyear.
PaulRaines (CEO):
Thankyou,Curtis.
Operator :
We'llgotoDavidMageewithSunTrust.
DavidMagee (Analyst-SunTrustRobinsonHumphrey):
Hello,guys.Goodafternoon.
PaulRaines (CEO):
Hello,David.
DavidMagee (Analyst-SunTrustRobinsonHumphrey):
Justacouplequestions.Oneis,giventhestrengthinthehardwarecyclethusfar,what'syourcurrentthinkingwithregardtothedurationofthecycle,howitplaysoutthenextcoupleyears,andalsoany
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page16of23
coloraboutthetieratios,aswell,wouldbehelpful.Thankyou.
PaulRaines (CEO):
That'sagreatquestion.Firstquestion,hardwarestrengthandhowlong--it'saninterestingquestion,right,becauseweobviouslyacceleratedandbroughtforwardabunchofdemand.Thequestionhe'sgotishowlongwillthislast.
T onyBartel(COO):
Well,weseeitcontinuing.Imean,it'scontinuedtogrowinstrength.AndIsharedearlierabouttieratio,thatwhenyoucombineourphysicaltieratioandourdigitaltieratiothatwe'refairlycomparabletothepriorlaunch.
Andwehavetremendousstrength,aswetalkedabout.What'shappeningisnowwe'resellingthe1terabytehardware,whichiscreatinganadditionaldemand.Soweseecontinueddemand.Mike,youmightwanttosharesomeofthePowerUprewardnumbersoncontinueddemand.
MikeHogan (EVP-StrategicBusiness):
Iwouldsaynumberone,we'restillprettyearlyinthecycle.Thelastoneisn'tgonein,what,sevenyearsinmostcases,andwe'rebarelytwoyearsintoit.Ithinkwe'reseeinganaccelerationonthesoftwaresideintermsoftheinstalledbaseisgrowing.You'veseenmoreandmorenewIPcomingout.
AndthenonthePowerUpside,oneofthethingswecontinuetotrackisPowerUpmembers'interestinpurchasingnewhardware.Andthosenumbersarestillverystrongandsimilartowhatwe'vereportedinthepast.Soallofourindicatorsarepositivethatconsumersarestillveryexcitedabouttheseproducts.Andthere'satonofconsumersouttherewhostillwantthesenewconsoleswhohaven'tboughtthemorhaven'tbeenabletoaffordthemyet.
T onyBartel(COO):
Andrememberthatsomeofthestrongestmultiplayergamesareaheadofus,soBlackOps3,whenyoulookatBattleFrontStarWars,thoseareincrediblemulti-playergames.Andthatisgoingtodriveawhole[guilds]togoandmigratetoanewplatform.Weseethatreallyhasnotstartedtotakeplaceinearnestyet,andwethinkthisfall,thatwillstarttotakeplaceinearnest.
DavidMagee (Analyst-SunTrustRobinsonHumphrey):
Thankyou.Andthensecondly,canyoutalkaboutthebreakdowninthepreownedbusinessbetweenwhatweconsidertraditionalpreownedproductversusthenewervalueproduct?
T onyBartel(COO):
Wehad$41millionworthofvalueproductthisquarter,whichwasanincreaseoverlastyearthatwehad.Soitcontinuedtodrive.That'swasourpurchaseswereforthequarter.Andsowecontinuetoincreasevalueofferings,aswell.Sothatcontributedsimilargrowth,aswell.
PaulRaines (CEO):
Ihaven'tchecked--thegoal,David,ofthevalue,ifyouremember,thevalueintroduction,IthinkitwasintheMarchcalllastyear,thegoalofthevalueproductwastoincreaseourmarketshareintitlesbelow$20.That'sourtraditionalweaknessonthenewsoftwareside.Ithinkwedidthatinthefirstquarter.
Secondquarter,I'mashamedtosayIhaven'tchecked.ButIsuspectweprobablyincreasedthat.Ithas
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page17of23
notbeenasfastaswehadhoped,andthat'spartlybecausewe'rejuststrugglingtogettosomeofthosepublishers.Ontheotherhand,there'salotofactivityinthatspacebyusintentonpurchasingmorevalueproducts.Ithinkyou'llseemoreonthat.
DavidMagee (Analyst-SunTrustRobinsonHumphrey):
Okay.Great.Thanks,Paul,andgoodluck.
PaulRaines (CEO):
Thankyou.
Operator :
Wehavetimefortwomorequestions.We'llgonexttoSethSigmanfromCreditSuisse.
SethSigman (Analyst-CreditSuisse):
Great.Thanksverymuch.Nicequarter,guys.
PaulRaines (CEO):
Thankyou,Seth.
SethSigman (Analyst-CreditSuisse):
Acouplequickfollow-upquestionshere.First,ontheTechBrandbusiness,justwonderingifyoucouldtalkabouthowthosestoresarecomping,thosethathavebeenopenfor12monthsorhoweveryoudiscloseit?Andthenalsotheoperatingearningsperformanceofthatbusinessthisquarter.Ithinkyougaveusrevenue,butI'mnotsureifIheardtheactualoperatingearnings.
PaulRaines (CEO):
Guys,whatcanwediscloseonthat?Wehavetobecarefulhere.
RobLloyd (CFO):
Intermsoftherevenueperformanceonaperstorebasis,Seth,itisnotincludedinourcompnumber.Andthereasonforthatisbecausehistorically,thewirelessretailbusinessissubjecttoalotofvolatilitythat'sdrivenbychangesinthecommissionandcompensationstructuresthatthecarriersputin.Wedidalittlebitofresearch,aswe'vesaidbefore,intermsofwhatcompanieswerepublicinthisspace.Ithinktherearen'tanyleft.They'vebeenacquired.
Andthepracticeistonotdisclosethosecomps,rathertotalkintermsof,forus,thegrowthinprofitabilityandgrowthinthestorebase,Ithink,isasignificantthing.Notsurewedisclosedtheoperatingearningsnumberforthequarter,andIdon'thavethatimmediatelyinfrontofme.Sowe'llhavetogetbacktoyouonthatone.
PaulRaines (CEO):
Ithinkthethingyou'vegottounderstandiswe'vegotpartnerstherewhohaverulesaboutwhattheywanttodisclose.Themobilesegment,though,Ithinkit'sagoodproxyfor--ofcourse,wedon'thaveoperatingearnings(Inaudible).
RobLloyd (CFO):
Thatwillbeinour10-Q,Seth.Iapologizefornothavingthat.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page18of23
SethSigman (Analyst-CreditSuisse):
Fairenough.Clearly,thatpartofthebusinessisininvestmentmode.Wesawthatlastquarterandagainthisquarter.Howdoyouthinkaboutthenormalizedoperatingmarginsforthatbusinessandwhenthatwillactuallystarttoinflectpositivelyfollowingthisinvestmentperiod?
RobLloyd (CFO):
Well,asTonyandIbothmentionedinslightlydifferentwaysinourscripts,weexpectthethirdquarterprofittobecomparabletolastyear'soperatingearningsforTechBrands.Wewillcontinue,aswe'reopening90to100storesthisquarter,toincursomeofthoseinfrastructurecoststoprepareforthoseopenings.Butinthefourthquarter,wethinkwe'regoingtobelargelypastthatandweexpectthattheprofitwillgrowsignificantlyfromlastyear.IthinkTonysaidex-thoseinfrastructureinvestments,wewouldexpecttheTechBrandsprofitfortheyeartobe40%to50%upfromlastyear.
T onyBartel(COO):
Intermsofoperatingprofitmargins,Rob,youmaywanttogivehimthelong-termforecastthatwe'veprovidedinvestorsbeforeforTechBrands.
RobLloyd (CFO):
Yes,thatis--Idon'thavethatslideinfrontofme,butifIremembercorrectly,itwasapproximately$170millioninoperatingearningsagainstarevenuebaseofabout$1.5billion.Soinexcessof10%operatingmargininthatspace.
PaulRaines (CEO):
Whichwouldbeaccretivetous.
RobLloyd (CFO):
Obviously,yes.
PaulRaines (CEO):
Ontraditionaloperatingmargins.
SethSigman (Analyst-CreditSuisse):
Okay.Gotit.Andthenjustafollow-upquestionontheusedgamebusiness.Ithinkearlieryoudisclosedabreakdownbetweencurrentandlastgenperformanceforthenewsoftwarebusiness.Lastquarter,youtalkedaboutthatforthepreownedbusiness.Justwonderingifyoucouldgiveussomecoloronthatthisquarter.
PaulRaines (CEO):
Sure.There'saslideonthisone,bytheway,Seth.Didyoutakeitdown?
SethSigman (Analyst-CreditSuisse):
Tookdowntheslide.
T onyBartel(COO):
64%newsoftwaregrowthonPS4andXboxOne,117%preownedsoftwaregrowth.Sosignificantly
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page19of23
increasedthere.AndthenonXbox360andPS3,asIsharedearlier,newsoftwarewasdown56%,preownedsoftwarewasonlydown25%.Sowecontinuetoseeoutpacingandalessdeclineinthepreownedsectionthanwedointhenew.
SethSigman (Analyst-CreditSuisse):
Okay.Andjustonefollow-up,ifImay,onthepreownedbusiness.GameStopputoutasurveythisquarterinapressreleasediscussinghowconsumerswereleavingsomemoneyonthetablebynottradingmoregamesin.What'stheCompanydoingtostimulatethattrade?Andisincreasingthetrade-invaluesoneoptiontosweetenthedealanddrivethattrade?
PaulRaines (CEO):
Sureitis.IthinkTonyhadinhisscript,ourinventorylevelintradeshasgoneup.
T onyBartel(COO):
Ourinventorylevel'sverystrong,up6%,andwe'vedonethatwithouthavingtopaymoreforthegames.Sothat'sbeen--obviously,that'sbeenagoodopportunityforus.Itisaconstantawarenessgame.
Andthat'swherePowerUprewardsishelpfulandsoforth.Andpartofthesurvey,tobecandid,wastoallowpeopletounderstandthatifyougointoourstorestoday,youwillfindthatwe'vejustkickedoffanothertrademore,savemorecampaign,whereeachstorewillhavethetoptraderoftheweeklisted,wheretherewillbetoptradevalueslisted.Ithinkthisisablockingandtacklingissueinourstores,wherewewillconstantlybeworkingtoeducatethecustomeronthegreattradevaluesthatwehave.
PaulRaines (CEO):
Theissueis,thedebateherearoundhere,ifyouwereinourofficeseveryday,theconstantdebateistradevaluesversusnewlaunchesthatdrivetradesversusmarketing,kindofthebigthree.Andwhatwe'vefound--andwecangetprovenwrong--whatwe'vefoundisbiglaunchesandin-storeexecutiondrivestradesmorethantradevalue.Mike?
MikeHogan (EVP-StrategicBusiness):
Iwouldjustaddtothat,fromaconsumerstandpoint,it'svalueandawareness.Wemadeahugesteplastyearwithoursimplifiedtradepricing.Whatwefoundisthatconsumersrespondedextremelywelltothat.Andwithalessermixofpromotionandagreatermixofeverydayvalue,peoplereallyrespondedwelltothat.
Andthentheotherthingwefindisthattradeawarenessisstillalwaysanopportunity.Andeverytimewehaveanopportunity,wewanttocommunicatethat,andeverytimewecommunicatethat,webringnewpeoplein.Andalltheevidencewehavesuggeststhatwhenwemakepeopleawareofthetradevaluesandwhattheycanget,theyrespondverypositivelytoit.Sowe'llcontinuetoworkonawareness.
PaulRaines (CEO):
Yes.
SethSigman (Analyst-CreditSuisse):
Okay.Thankyouforallthecolor.Appreciateit.
Operator :
We'llgonexttoScottTilghmanfromB.Riley.
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page20of23
Scott T ilghman (Analyst-B.RileyandCompany):
Thanks.Goodafternoon.
PaulRaines (CEO):
Hello,Scott.
Scott T ilghman (Analyst-B.RileyandCompany):
Ijusthaveafew,Ihope,relativelyquickquestions.FirstoffontheCollectiblesside,asyougearupinthatcategoryandhavealittlebitofhistorywithit,doyouexpectittoultimatelybelumpierthannewcontentsalesordoyouthinkyouhaveanopportunitytoprovidesomesmoothingoftherevenuewithmerchandisingwithinthecategory?
MikeMauler (President-International):
ThisisMikeMauler.Ithinkthatwhatwe'llsee,becauseit'sabroaderrangeofIP,wewillseeittobesmoother.Soyou'reconsistentlyhavingnewmovies,newtelevisionshowsandvideogamelaunchesthroughouttheyear.Andsoforexample,themovielaunchesinthesummer,there'sfrequentlynotalotofnewreleasesonvideogames,butthere'salotoflootyoucansellwiththatnewIP.Soitseemslikeitwillbemoreconsistentlystrong.
PaulRaines (CEO):
Ithinkthefactthatyou'reseeingusoutperforminthesecondquarterindicateshowthelootisreallycontributingtobalancingourdemandflow.AndasMikesays,there'salotofIPthat'snotvideogames.Soitshould.
Scott T ilghman (Analyst-B.RileyandCompany):
AndIassumethatyouwillbefollowingupwithmarketingsupportbehindthat,asthecollectiongrows.
MikeMauler (President-International):
Absolutely.
PaulRaines (CEO):
Wehopeso.I'mlookingatHogan.He'sshakinghishead.
MikeHogan (EVP-StrategicBusiness):
I'mnodding.
PaulRaines (CEO):
Hedoesn'thaveabigcheckbook,buthe'snodding.
Scott T ilghman (Analyst-B.RileyandCompany):
Second,oninternational,Imissedacoupleofcomments.IknowAustraliawasupover10%onacomparablebasis.AndifIheardthatcorrectly,thatmeanstheothermarkets,EuropeandCanada,weredown.Iwaswonderingifyoucouldcompareandcontrastalittlebitwhatyou'reseeingonthe--acrosstheinternationalgeographies.
PaulRaines (CEO):
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page21of23
Wanttotakethat,Mike?
MikeMauler (President-International):
Sure,justasecond.
RobLloyd (CFO):
I'llgoaheadandgivethecomps.TheCanadiancompwas8.5%andweweredownincompinEurope3.8%.Asfarascolor,I'llturnitovertoMike.
MikeMauler (President-International):
ThecolorwouldbeourtwostrongestmarketshavebeenAustraliaandCanada.InEuropelastyear,wehadverygoodhardwareallocationsandEuropereallyexceededtherestoftheinternationalmarketsintermsofhardwaresales.Thisyearwe'rebacktoournormal--closertoournormalmarketsizeinhardware,andsothatwasalittlebitofheadwindforthem.
PaulRaines (CEO):
Onethingtoadd,Mike,maybemightbethattheconceptoflootappearstobemoreofanAnglo,maybeNorthernEuropeanconcept.SouthernEurope,wehaven'tseenthekindofresultswe'veseenmaybeinsomeoftheNorthernEuropeanmarkets.
MikeMauler (President-International):
That'strue.ThegrowthoflootinAustralia,Canada,theUnitedStates,NorthernEurope,theNordicsandIrelandhavebeenconsistentlyaheadofwhatwe'veseeninSouthernEurope.Sothat'ssomethingwecontinuetohavetoexplore.
PaulRaines (CEO):
Wemaynothavetherightassortmentyet.That'sonepossibility.Butwecertainlyhaveworktodo.
Scott T ilghman (Analyst-B.RileyandCompany):
That'shelpful.ThelastquestionIhave,justintermsofthecompetitiveenvironment,you'vehadsomesmallerregionalplayerspulloutofthecategory.ItseemslikesomeofthebigboxesevenhavediminishedtheimportanceofCEasaleadingorasaleadingcategoryoratrafficdriver.ButI'mcuriouswhatyourtakeis,one,thecompetitiveenvironment,bothdomesticallyandabroad.
PaulRaines (CEO):
Forvideogamesorlootor--?
Scott T ilghman (Analyst-B.RileyandCompany):
Forthebroaderproductmix.
PaulRaines (CEO):
I'lllettheseguysaddtheircomments.We'vebeenwatchingalloftheseplayersaroundtheworldforalongtime,andIcan'tsayI'veseenmuchdiminishingofanythingthey'redoing.They'reallrunningtheirplay.BestBuydidhaveagoodnumberyesterday,itappears.Ihaven'tseenthevideogamecomp.Tony?
T onyBartel(COO):
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page22of23
Ihavenot.
PaulRaines (CEO):
I'dbesurprisediftheyreallygainedatonofshare.Butwedon'tseeahugeamountofactivity.Ourcompetitorbaseissobroadnow,too.Usedtobewe'dgetonacallandwe'dtalkaboutWal-MartandBestBuy,MediaMartand[Satur]andJBHi-Fi,Amazon.Todaywetalkaboutlotsandlotsofotherpeople,digitalplayers,publisherswhoaretryingtogodirectversusthroughretail.AndsoIhavenotseenatonofactivityherethat'snew,otherthantheplayers.
MikeHogan (EVP-StrategicBusiness):
Idon'tseealotofchangeinactivity.Ithinkthatthereisa--wecontinuetogainmarketshare.Andsolikewesayquarterinandquarterout,we'resellingover50%ofthegames.Wehavemadeaverydistinctefforttotryandwinthisconsolelaunch.We'vebeenveryclearaboutthatforthelasttwoyears,andIthinkwe'vebeeneffectiveinthat.
SoI'msurethattherearepeopleatsomeofthoseotherlocationsthatPaulmentionedthatareseeingasignificantreduction.Thewholecategoryisnot--hasnottripledthesaleofPS3s,andthewholecategoryhasnotnearlydoubledXboxOne.Soclearly,we'vetakenalotofsharefromalotofthoseotherpeople.Idon'tthinkthatthey'retryingless.Ijustthinkwe'rerunningourplayanditseemstobeworking.
PaulRaines (CEO):
Guys,weshouldtalkabout,onthemobilelootside,there'sawholenewcastofcharacters.WeareacommittedAT&Tpartner,soweareinpartnershipwiththem.WecompetedirectlywithVerizon,SprintandT-Mobile.Andwesortofliveanddiebythosefortunes.Onthelootside,there'sprobablyalotofplayersonthelootside.Don'thavesharedataonloot,unfortunately.ButIsuspectwe'regrowingvery,veryfastonthesharedataonloot.
Scott T ilghman (Analyst-B.RileyandCompany):
Paul,toyourpoint,Iassumeinstallmentbillingisactuallyabenefittoyou,giventhatsomeoftheothersouttherecompetingcan'tofferit.
PaulRaines (CEO):
Yes,yes,Ithinkthat'saccurate.Ithinkthat'saccurate.Andthere'sjustalotgoingonunderoneroof.Don'tforget,wealsoofferCricketin2,000storesorso.So2,000GameStopstores,wewillsellyouaCricketprepaidphoneandacontract.
Sowhenyoucandoprepaidphonesinastore,youcanprobablydosomeotherprepaidthings.Sowe'reexploringthatveryaggressively.There'sjustalot--asIsaidinmynotes,there'sjustalotgoingonhere,andwedon'thavetheluxuryofslowingdown.
Maybetodayitfeelslessscary,buttherewasatimeherewherewewerecomingineveryday,figuringouthowwe'regoingtogetthroughthedayandsoforth.Today,fortunately,Ithinkwe'repastthat.Butwecan'tslowdown,so--
Scott T ilghman (Analyst-B.RileyandCompany):
Okay.Well,thankyoufortakingthequestions.
T onyBartel(COO):
CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail
EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2
©2014TheStreet,Inc.Al l R ightsReserved Page23of23
Thankyou.
PaulRaines (CEO):
Allright.Well,thankyouforyoursupportofGameStopandwe'lllookforwardtotalkingtoeveryone.Ifyou'recomingtoourshownextweek,we'llseeyouthere;andifnot,we'lltalktoyouduringthequarter.Thankyou.
Operator :
Thisdoesconcludetoday'sconference.
Allrightsreserved(c)2014TheStreet,Inc.
Pleasefeelfreetoquoteupto200wordspertranscript.Anyquoteshouldbeaccompaniedby"ProvidedbyTheStreet"andalinktothecompletetranscriptandwww.thestreet.com.Anyotheruseormethodofdistributionisstrictlyprohibited.
THEINFORMATIONCONTAINEDINEACHWRITTENORAUDIOTRANSCRIPT(the"TRANSCRIPT")ISAREPRODUCTIONOFAPARTICULARCOMPANY'SCONFERENCECALL,CONFERENCEPRESENTATIONOROTHERAUDIOPRESENTATION.THETRANSCRIPTSAREPROVIDED"ASIS"AND"ASAVAILABLE"ANDTHESTREETISNOTRESPONSIBLEINANYWAYNORDOESITMAKEANYREPRESENTATIONORWARRANTYREGARDINGTHEACCURACYORCOMPLETENESSOFTHETRANSCRIPTSASPRODUCED,NORTHESUBSTANCEOFAPARTICULARCOMPANY'SINFORMATION.
THETRANSCRIPTSAREPROVIDEDFORINFORMATIONALPURPOSESONLY.THESTREETISNOTPROVIDINGANYINVESTMENTADVICEORENDORSINGANYPARTICULARCOMPANY.