Q Earnings. S eptember 6, 20 18

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Transcription:

Q2 20 18 Earnings S eptember 6, 20 18

S afe Ha rbor & Non- GAAP Measures Safe Harbor This presentation contains forward -looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon management s current beliefs, views, estimates and expectations, including as to the Company s industry, business strategy, goals and expectations concerning its market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Such statements include without limitation those about the Company s outlook for fiscal 2018, future financial and operating results, projections, expectations and other statements that are not historical facts. All statements regarding the board s review of operating, strategic, financial and structural alternatives and expected costs and benefits, including whether operating, strategic, financial and structural alternatives could unlock value, are forward -looking statements. Forward -looking statements are subject to significant risks and uncertainties and actual developments, business decisions and results may differ materially from those reflected or described in the forward -looking statements. The following factors, among others, could cause actual results to differ from those reflected or described in the forward -looking statements : the uncertain outcome, impact, effects and results of the board s review of operating, strategic, financial and structural alternatives ; volatility in capital and credit markets, including changes that reduce availability, and increase costs, of capital and credit ; our inability to obtain sufficient quantities of product to meet consumer demand ; the timing of release and consumer demand for new and pre -owned products ; our ability to continue to expand, and successfully open and operate new stores for our collectibles and technology brands businesses ; risks associated with achievement of anticipated financial and operating results from acquisitions ; our ability to sustain and grow our console digital video game sales ; the impact of goodwill and intangible asset impairments ; cost reduction initiatives, including store closing costs ; risks related to changes in, and our continued retention of, executive officers and other key personnel ; changes in consumer preferences and economic conditions ; increased operating costs, including wages ; cyber security events and related costs ; risks associated with international operations ; changes to our wireless industry partnerships and operations ; increased competition and changing technology in the video game industry ; changes in domestic or foreign laws and regulations that reduce consumer demand for, or increase prices of, our products or otherwise adversely affect our business ; our effective tax rate and the factors affecting our effective tax rate, including changes in international, federal or state tax, trade and other laws and regulations ; the costs and outcomes of legal proceedings and tax audits ; and unexpected changes in the assumptions underlying our outlook for fiscal 2018. Additional factors that could cause our results to differ materially from those reflected or described in the forward -looking statements can be found in GameStop's Annual Report on Form 10-K for the fiscal year ended February 3, 2018 filed with the SEC and available at the SEC's Internet site at http ://www.sec.gov or http ://investor.gamestop.com. Forward -looking statements contained in this presentation speak only as of the date of this presentation. The Company undertakes no obligation to publicly update any forward -looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws. Non - GAAP Measures and Other Metrics As a supplement to our financial results presented in accordance with U.S. generally accepted accounting principles (GAAP), GameStop may use certain non -GAAP measures, such as adjusted operating earnings, adjusted net income and constant currency. We believe these non -GAAP financial measures provide useful information to investors in evaluating our core operating performance. Adjusted operating earnings and adjusted net income exclude the effect of items such as asset impairments, store closure costs, severance, non -operating tax charges, as well as acquisition and divestiture costs. Results reported as constant currency exclude the impact of fluctuations in foreign currency exchange rates by converting our local currency financial results using the prior period exchange rates and comparing these adjusted amounts to our current period reported results. Our definition and calculation of non -GAAP measures may differ from that of other companies. Non -GAAP financial measures should be viewed in addition to, and not as an alternative for, the company's reported GAAP financial results. Additionally, GameStop uses digital receipts as an operating metric and defines it as the retail value paid by the customer for digital content sold individually or bundled with non -digital products and sales of subscriptions to our Game Informer magazine in digital form. The vast majority of our digital receipts come from digital products that are sold individually rather than bundled with other products. Under GAAP, we recognize the sale of these digital products on a net basis, whereby the commissions earned are recorded to revenue rather than the full retail price paid by the customer. We believe this operating metric is useful in understanding the size and performance of our digital business in comparison to measures of the overall digital industry revenues and our other video game product categories. 2

Q2 20 18 Consolidated Results Total global sales decreased 2.4% to $1.65B Comparable store sales decreased 0.5% N ew ha rdw a re s a les increa s ed 20.1% to $ 29 8.3M New software sales decreased 18.5% to $30 0.9M Collectibles sales increased 15.7% to $141.7M 3

Q2 20 18 Consolidated Performance (In millions, except EPS and % s) Q2 2018 Q2 2017 Total Sales $1,646.7 $1,687.6 Gross Margin 36.2% 37.0% Operating Earnings (GAAP) $21.6 $43.6 Net (Loss) Income (GAAP) $(24.9) $22.2 Diluted EPS (GAAP) $(0.24) $0.22 Operating Earnings (adjusted) $21.6 $36.3 Net Income (adjusted) $4.7 $14.9 Diluted EPS (adjusted) $0.05 $0.15 Certain totals and variances may not recalculate due to rounding. A reconciliation of adjusted financial results to the neare st GAAP measure is presented in the appendix of this presentation. 4

Q 2 20 18 S a les C a tegory H ighlights (In millions, except % s) Q2 2018 Q2 2017 Var. (%) New Hardware $298.3 $248.4 20.1% New Software $300.9 $369.3-18.5% Pre- owned & Value Video Game Products $452.1 $501.8-9.9% Video Game Accessories $187.3 $144.1 30.0% Digital $40.2 $46.5-13.5% Technology Brands $168.9 $188.3-10.3% Collectibles $141.7 $122.5 15.7% Other $57.3 $66.7-14.1% Total Sales $1,646.7 $1,687.6-2.4% Certain totals and variances may not recalculate due to rounding. 5

Q 2 20 18 G ros s P rofit by C a tegory (In millions, except % s) Q2 2018 Q2 2017 New Hardware $34.6 $26.7 29.6% New Software $67.9 $81.8-17.0% Pre- owned & Value Video Game Products $197.5 $225.6-12.5% Video Game Accessories $62.7 $47.7 31.4% Digital $36.3 $37.9-4.2% Technology Brands $132.4 $138.9-4.7% Collectibles $45.1 $43.2 4.4% Other $19.6 $21.9-10.5% Total Gross Profit Gross Margin $596.1 36.2% $623.7 37.0% Var. (%) -4.4% -80bps Certain totals and variances may not recalculate due to rounding. 6

2 0 18 G u id a n c e FY 2018E Total Sales -2.0% to - 6.0% Comp SSS 1 Flat to -5% Adj. Income Tax Rate 26.0% to 27.0% Adj. EPS (diluted) 2 $3.00 to $3.35 Income Tax Rate Guidance of 26% -27% is an adjusted tax rate and excludes all adjustments in the first half of fiscal 2018 and potential charges in fiscal Q3 or Q4 of 2018 1 Excludes Technology Brands stores. 2 Diluted EPS guidance is based on weighted average shares outstanding of approximately 10 2M. 7

20 18 Projected Cash Flow Use Sources Use of Free Cash Flow ~$300M of FCF (1) Debt paydown ( ~$75M) Dividend ( ~$ 15 0 M ) R em a ining FC F ( ~$ 75 M) Focus on: $110 to $120M of Capital Expenditures Store remodels/maintenance S ystem s ~$150m for Dividends ~$75M Debt Paydown ~$75M Remaining FCF (1) Excluding the effects of the ongoing audit with the French tax authorities

Appendix 9

GA A P R econcilia tion Non - GAAP measures and Other Metrics The following table reconciles the Company's operating earnings, net income and earnings per share as presented in its unaudited consolidated statements of operations and prepared in accordance with Generally Accepted Accounting Principles ("GAAP") to its adjusted operating earnings, net income and earnings per share. The diluted weighted - average shares outstanding used to calculate adjusted earnings per share for the 13 weeks ended August 4, 2018 differs from GAAP weighted - average shares outstanding and assumes the inclusion of 0.1 million common stock equivalents associated with restricted stock awards. Under GAAP, basic and diluted weighted - average shares outstanding are the same in periods where there is a net loss. 10

GA A P R econcilia tion 13 Weeks Ended 13 Weeks Ended 26 Weeks Ended 26 Weeks Ended August 4, 2018 July 29, 2017 August 4, 2018 July 29, 2017 Technology Brands Adjusted Operating Earnings Technology Brands operating earnings $ 20.3 $ 15.0 $ 30.1 $ 26.1 Store closure costs 1.4 7.3 Technology Brands adjusted operating earnings $ 20.3 $ 15.0 $ 31.5 $ 33.4 Consolidated Adjusted Operating Earnings Operating earnings $ 21.6 $ 43.6 $ 78.7 $ 144.7 Store closure costs 1.4 7.3 Severance and other 11.2 Business divestitures (7.3) (7.3) Adjusted operating earnings $ 21.6 $ 36.3 $ 91.3 $ 144.7 Consolidated Adjusted Net Income Net (loss) income $ (24.9) $ 22.2 $ 3.3 $ 81.2 Non-operating tax charge 29.6 29.6 Store closure costs 1.4 7.3 Severance and other 11.2 Business divestitures (7.3) (7.3) Tax effect of non-gaap adjustments (1.8) (2.7) Adjusted net income $ 4.7 $ 14.9 $ 43.7 $ 78.5 Adjusted Earnings Per Share Basic $ 0.05 $ 0.15 $ 0.43 $ 0.77 Diluted $ 0.05 $ 0.15 $ 0.43 $ 0.77 Number of shares used in adjusted calculation Basic 102.1 101.4 101.9 101.3 Diluted 102.2 101.5 102.1 101.4 11

T hank you