Net Sales Grew 25% to $1.3 Billion
Appoints Technology Veterans Matt Furlong and Mike Recupero to CEO and CFO Positions, Respectively
GameStop Corp. (NYSE: GME), today reported results for the first quarter ended May 1, 2021.
First Quarter Fiscal 2021 Highlights
Capital Structure and Liquidity Update
As of May 1, 2021, the Company had $770.8 million in cash and restricted cash, compared to $583.9 million in cash and restricted cash in the prior year. The Company had no borrowings under its asset-based revolving credit facility and no long-term debt.
On April 26, 2021, the Company announced it raised approximately $551.7 million in net proceeds through the issuance of 3.5 million shares of common stock under its "at-the-market" equity offering program, resulting in total shares outstanding of approximately 71.9 million. The Company has used and intends to continue using net proceeds to accelerate GameStop's transformation as well as for general corporate purposes and further strengthening the balance sheet.
On April 30, 2021, the Company completed its voluntary early redemption of $216.4 million in principal amount of its 10.0% Senior Notes due 2023 on April 30, 2021. This voluntary early redemption covered the entire amount of the outstanding 10.0% Senior Notes, which represented all of the Company's long-term debt.
In addition, the Company intends to file with the U.S. Securities and Exchange Commission a prospectus supplement to the base prospectus included in the Company's shelf registration statement on Form S-3 (File No. 333-251197) under which the Company may offer and sell up to 5 million shares of its common stock, from time to time, in "at-the-market" offerings. The Company intends to use net proceeds for general corporate purposes as well as for investing in growth initiatives and maintaining a strong balance sheet. The timing and amount of any sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares and other factors as determined by the Company.
Before investing, read the prospectus supplement (after it is filed) and the base prospectus in the registration statement and other documents the Company files with the SEC for more complete information about the Company and the offering. Documents filed with the SEC may be obtained for free by visiting EDGAR on the SEC Web site at www.sec.gov. This press release shall not constitute an offer to sell or a solicitation of an offer to buy any security, nor shall there be any sale of the Company's common stock in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
GameStop today announced the appointments of Matt Furlong as Chief Executive Officer and Mike Recupero as Chief Financial Officer. Messrs. Furlong and Recupero join from Amazon, where they held senior roles and oversaw various growth initiatives during their respective tenures. The Company is continuing to actively pursue senior talent with gaming, retail and technology experience.
GameStop is continuing to suspend guidance at this time; however, it believes total net sales is the most appropriate metric to evaluate performance at this time. The Company's second quarter sales trends continue to reflect momentum, with May total sales increasing approximately 27% compared to last year.
Webcast and Conference Call Information
A webcast with GameStop management is scheduled for June 9, 2021, at 5:00 p.m. ET to discuss the Company's financial results and can be accessed on GameStop's investor relations home page at http://investor.GameStop.com/. The phone number for the call is 877-451-6152 and the confirmation code is 13720011. This webcast will be archived for two months on GameStop's corporate website.
GameStop, a Fortune 500 company headquartered in Grapevine, Texas, is a leading specialty retailer offering games and entertainment products through its E-Commerce properties and thousands of stores. Visit www.GameStop.com to explore our products and offerings. Follow @GameStop and @GameStopCorp on Twitter and find us on Facebook at www.facebook.com/GameStop.
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 SG&A, adjusted operating income (loss), adjusted net income (loss), adjusted diluted earnings (loss) per share, adjusted EBITDA and free cash flow. We believe these non-GAAP financial measures provide useful information to investors in evaluating our core operating performance. Adjusted selling, general and administrative expenses ("Adjusted SG&A"), adjusted operating income (loss), adjusted net income (loss) and adjusted earnings (loss) per share exclude the effect of items such as transformation costs, asset impairments, store closure costs, severance, as well as 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 financial measures may differ from that of other companies. Non-GAAP financial measures should be viewed as supplementing, and not as an alternative or substitute for, the Company's financial results prepared in accordance with GAAP. Certain of the items that may be excluded or included in non-GAAP financial measures may be significant items that could impact the Company's financial position, results of operations or cash flows and should therefore be considered in assessing the Company's actual and future financial condition and performance.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS - SAFE HARBOR
This press release 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, strategic and transformation initiatives, future operations, margins, profitability, comparable store growth, capital expenditures, liquidity, capital resources, expansion of technology expertise, and other financial and operating information, including expectations as to future operating profit improvement. Such statements include without limitation those about the Company's expectations for fiscal 2021, future financial and operating results, projections and other statements that are not historical facts. Forward-looking statements are subject to significant risks and uncertainties and actual developments, business decisions, outcomes and results may differ materially from those reflected or described in the forward-looking statements. The following factors, among others, could cause actual developments, business decisions, outcomes and results to differ materially from those reflected or described in the forward-looking statements: macroeconomic pressures, including the effects of the COVID-19 pandemic on consumer spending and the Company's ability to keep stores open; the impact of the COVID-19 pandemic on the Company's business and financial results; the economic conditions in the U.S. and certain international markets; the amounts devoted to strategic investments, including in E-Commerce capabilities and other business transformation initiatives, and failure to achieve anticipated profitability increases and benefits from such initiatives within the expected time-frames or at all; the cyclicality of the video game industry; the Company's dependence on the timely delivery of new and innovative products from its vendors; the impact of technological advances in the video game industry and related changes in consumer behavior on the Company's sales; the Company's ability to keep pace with changing industry technology and consumer preferences; decrease in popularity of certain types of video games; the Company's ability to react to trends in pop culture with regard to its sales of collectibles and dependence on licensed products for a substantial portion of such sales; the competitive nature of the Company's industry, including competition from mass retailers, E-Commerce businesses, and traditional store-based retailers; the ability and willingness of the Company's vendors to provide marketing and merchandise support at historical or anticipated levels; the Company's ability to attract and retain executive officers and other key personnel; the Company's ability to obtain favorable terms from its current and future suppliers and vendors, including those engaged as part of the Company's shift to E-Commerce sales; the international nature of the Company's business; foreign currency fluctuations; changes in the Company's global tax rate; the impact of international crises and trade restrictions and tariffs on the delivery of the Company's products; the Company's dependence on sales during the holiday selling season; fluctuations in the Company's results of operations from quarter to quarter; the Company's ability to de-densify its global store base; the Company's ability to renew, terminate or enter into new leases on favorable terms; the adequacy of the Company's management information systems; the Company's reliance on centralized facilities for refurbishment of its pre-owned products; the Company's ability to maintain security of its customer, employee or company information; potential harm to the Company's reputation, including from cybersecurity breaches; the Company's ability to maintain effective control over financial reporting; restrictions on the Company's ability to purchase and sell pre-owned video games; potential future litigation and other legal proceedings; changes in accounting rules and regulations; and the Company's ability to comply with federal, state, local and international law. Additional factors that could cause 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 January 30, 2021 being filed on the date of this press release and other filings made from time to time 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 press release speak only as of the date of this press release. 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.
Condensed Consolidated Statements of Operations
(in millions, except per share data)
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Net sales $ 1,276.8 $ 1,021.0 Cost of sales 946.7 738.6 Gross profit 330.1 282.4 Selling, general and administrative expenses 370.3 386.5 Asset impairments 0.6 3.9 Operating loss (40.8 ) (108.0 ) Interest expense, net 24.7 6.7 Loss from continuing operations before income taxes (65.5 ) (114.7 ) Income tax expense 1.3 50.4 Net loss from continuing operations (66.8 ) (165.1 ) Loss from discontinued operations, net of tax -- (0.6 ) Net loss $ (66.8 ) $ (165.7 ) Basic loss per share: Continuing operations $ (1.01 ) $ (2.56 ) Discontinued operations -- (0.01 ) Basic loss per share $ (1.01 ) $ (2.57 ) Diluted loss per share: Continuing operations $ (1.01 ) $ (2.56 ) Discontinued operations -- (0.01 ) Diluted loss per share $ (1.01 ) $ (2.57 ) Weighted-average common shares outstanding: Basic 66.0 64.5 Diluted 66.0 64.5 Percentage of Net Sales: Net sales 100.0 % 100.0 % Cost of sales 74.1 72.3 Gross profit 25.9 27.7 Selling, general and administrative expenses 29.1 37.9 Asset impairments -- 0.4 Operating loss (3.2 ) (10.6 ) Interest expense, net 1.9 0.6 Loss from continuing operations before income taxes (5.1 ) (11.2 ) Income tax expense 0.1 5.0 Net loss from continuing operations (5.2 ) (16.2 ) Loss from discontinued operations, net of tax -- -- Net loss (5.2 ) % (16.2 ) %
Condensed Consolidated Balance Sheets
May 1, 2021 May 2, 2020 ASSETS: Current assets: Cash and cash equivalents $ 694.7 $ 570.3 Restricted cash 57.4 -- Receivables, net 102.1 86.7 Merchandise inventories 570.9 654.7 Prepaid expenses and other current assets 232.1 99.1 Assets held-for-sale -- 9.1 Total current assets 1,657.2 1,419.9 Property and equipment, net 192.6 256.3 Operating lease right-of-use assets 654.2 706.2 Deferred income taxes -- 29.2 Long-term restricted cash 18.7 13.6 Other noncurrent assets 40.0 43.8 Total assets $ 2,562.7 $ 2,469.0 LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 388.6 $ 212.1 Accrued liabilities and other current liabilities 561.8 506.0 Current portion of operating lease liabilities 219.4 249.4 Short-term debt, including current portion of long-term debt, net 48.1 417.2 Borrowings under revolving line of credit -- 135.0 Total current liabilities 1,217.9 1,519.7 Operating lease liabilities 445.0 493.9 Other long-term liabilities 20.3 20.4 Total liabilities 1,683.2 2,034.0 Total stockholders' equity 879.5 435.0 Total liabilities and stockholders' equity $ 2,562.7 $ 2,469.0
Condensed Consolidated Statements of Cash Flows
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Cash flows from operating activities: Net loss $ (66.8 ) $ (165.7 ) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation and amortization (including amounts in cost of sales) 18.7 21.5 Loss (gain) on retirement of debt 18.2 (0.7 ) Asset impairments 0.6 3.9 Stock-based compensation expense 5.7 1.8 Deferred income taxes -- 45.4 Loss on disposal of property and equipment, net 0.4 0.3 Other, net (0.5 ) 1.2 Changes in operating assets and liabilities: Receivables, net 3.1 54.4 Merchandise inventories 32.4 196.0 Prepaid expenses and other current assets (2.9 ) 5.8 Prepaid income taxes and income taxes payable (1.2 ) 22.3 Accounts payable and accrued liabilities (11.4 ) (274.1 ) Operating lease right-of-use assets and liabilities (15.0 ) 38.8 Changes in other long-term liabilities (0.1 ) (0.2 ) Net cash flows used in operating activities (18.8 ) (49.3 ) Cash flows from investing activities: Purchase of property and equipment (14.7 ) (6.6 ) Other -- 0.5 Net cash flows used in investing activities (14.7 ) (6.1 ) Cash flows from financing activities: Proceeds from issuance of common stock, net of cost 551.7 -- Borrowings from the revolver -- 150.0 Repayments of revolver borrowings (25.0 ) (15.0 ) Payments of senior notes (307.4 ) (2.3 ) Settlement of stock-based awards (49.9 ) (0.5 ) Other (0.1 ) (0.3 ) Net cash flows provided by (used in) financing activities 169.3 131.9 Exchange rate effect on cash, cash equivalents and restricted cash -- (6.1 ) Increase (decrease) in cash, cash equivalents and restricted cash 135.8 70.4 Cash, cash equivalents and restricted cash at beginning of period 635.0 513.5 Cash, cash equivalents and restricted cash at end of period $ 770.8 $ 583.9
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Net Percent Net Percent Net Sales (in millions): Sales of Total Sales of Total Hardware and accessories $ 703.5 55.1 % $ 513.1 50.3 % Software 397.9 31.2 417.0 40.8 Collectibles 175.4 13.7 90.9 8.9 Total $ 1,276.8 100.0 % $ 1,021.0 100.0 % (1) Includes sales of new and pre-owned hardware, accessories, hardware bundles in which hardware and digital or physical software are sold together in a single SKU, interactive game figures, strategy guides, mobile and consumer electronics. (2) Includes sales of new and pre-owned video game software, digital software and PC entertainment software.
(in millions, except per share data)
The following tables reconcile the Company's selling, general and administrative expenses ("SG&A"), operating loss, net loss and loss per share as presented in its unaudited consolidated statements of operations and prepared in accordance with Generally Accepted Accounting Principles ("GAAP") to its adjusted SG&A, adjusted operating loss, adjusted net loss, adjusted EBITDA and adjusted loss per share. The diluted weighted-average shares outstanding used to calculate adjusted earnings per share may differ from GAAP weighted-average shares outstanding. Under GAAP, basic and diluted weighted-average shares outstanding are the same in periods where there is a net loss. The reconciliations below are from continuing operations only.
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Adjusted SG&A SG&A $ 370.3 $ 386.5 Transformation costs (6.4 ) (1.5 ) Significant transactions (0.2 ) -- Divestitures, severance and other (12.0 ) (3.8 ) Adjusted SG&A $ 351.7 $ 381.2 Adjusted Operating Loss Operating loss $ (40.8 ) $ (108.0 ) Transformation costs 6.4 1.5 Asset impairments 0.6 3.9 Significant transactions 0.2 -- Divestitures, severance and other 12.0 3.8 Adjusted operating loss $ (21.6 ) $ (98.8 ) Adjusted Net Loss Net loss $ (66.8 ) $ (165.7 ) Loss from discontinued operations, net of tax -- 0.6 Net loss from continuing operations $ (66.8 ) $ (165.1 ) Transformation costs 6.4 1.5 Asset impairments 0.6 3.9 Significant transactions 18.4 (0.7 ) Divestitures, severance and other 12.0 3.8 Tax effect of non-GAAP adjustments -- (1.0 ) Adjusted net loss $ (29.4 ) $ (157.6 ) Adjusted loss per share Basic $ (0.45 ) $ (2.44 ) Diluted $ (0.45 ) $ (2.44 ) Number of shares used in adjusted calculation Basic 66.0 64.5 Diluted 66.0 64.5 (1) Includes transaction costs associated with our ATM offering and voluntary early redemptions of the 2023 Senior Notes. (2) Includes transaction costs associated with the ATM offering and transactions costs, make-whole premium and accelerated amortization of the deferred financing costs associated with the voluntary early redemption of the 2023 Senior Notes. Prior year includes the discount of open market purchases of the 2021 Senior Notes. (3) Severance includes cash and stock based compensation for key personnel that have separated from the company.
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Reconciliation of Net Loss to Adjusted EBITDA Net loss $ (66.8 ) $ (165.7 ) Loss from discontinued operations, net of tax -- 0.6 Loss from continuing operations $ (66.8 ) $ (165.1 ) Interest expense, net 24.7 6.7 Depreciation and amortization 18.7 21.5 Income tax expense 1.3 50.4 EBITDA $ (22.1 ) $ (86.5 ) Stock-based compensation 2.2 1.8 Transformation costs 6.4 1.5 Asset impairments 0.6 3.9 Significant transactions 0.2 -- Divestitures, severance and other 12.0 3.8 Adjusted EBITDA $ (0.7 ) $ (75.5 ) (1) Includes transaction costs associated with our ATM offering and voluntary early redemption of the 2023 Senior Notes. (2) Severance includes cash and stock based compensation for key personnel that have separated from the company.
The following table reconciles the Company's cash flows provided by operating activities as presented in its unaudited Consolidated Statements of Cash Flows and prepared in accordance with GAAP to its free cash flow. Free cash flow is considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for use by investors in evaluating the company's financial performance.
13 Weeks Ended 13 Weeks Ended May 1, 2021 May 2, 2020 Net cash flows used in operating activities $ (18.8 ) $ (49.3 ) Purchase of property and equipment (14.7 ) (6.6 ) Free cash flow $ (33.5 ) $ (55.9 )
Non-GAAP Measures and Other Metrics
Adjusted EBITDA is a supplemental financial measure of the Company's performance that is not required by, or presented in accordance with, GAAP. We believe that the presentation of this non-GAAP financial measure provides useful information to investors in assessing our financial condition and results of operations. We define Adjusted EBITDA as net income (loss) before income taxes, plus interest expense, net and depreciation and amortization, excluding stock-based compensation, transformation costs, business divestitures, asset impairments, severance and other non-cash charges. Net income (loss) is the GAAP financial measure most directly comparable to Adjusted EBITDA. Our non-GAAP financial measures should not be considered as an alternative to the most directly comparable GAAP financial measure. Furthermore, non-GAAP financial measures have limitations as an analytical tool because they exclude some but not all items that affect the most directly comparable GAAP financial measures. Some of these limitations include:
-- certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure;
-- Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
-- Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
-- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
-- our computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
We compensate for the limitations of Adjusted EBITDA as an analytical tool by reviewing the comparable GAAP financial measure, understanding the differences between the GAAP and non-GAAP financial measures and incorporating these data points into our decision-making process. Adjusted EBITDA is provided in addition to, and not as an alternative to, the Company's financial results prepared in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA may be defined and determined differently by other companies in our industry, our definitions of these non-GAAP financial measures may not be comparable to similarly titled measures of other companies, thereby diminishing their utility.
GameStop Corp. Investor Relations