GameStop Corp. (GME) Q2 2021 Earnings Call Transcript

GameStop Corp.  (NYSE: GME) Q2 2021 earnings call dated Sep. 08, 2021

Corporate Participants:

Matt Furlong — Chief Executive Officer

Presentation:

Operator

Greetings, and welcome to GameStop’s Second Quarter Fiscal 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and will be archived for two months on GameStop’s Investor Relations website.

This call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Any such statements should be considered in conjunction with the cautionary statements and the Safe Harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. GameStop assumes no obligation to update any of these forward-looking statements or information.

A reconciliation and other information regarding non-GAAP financial measures discussed on the call can be found in the company’s earnings release issued earlier today, as well as the Investor section of the GameStop website. Please note that the company will not be hosting a Q&A session as part of today’s call.

Now, I would like to turn the call over to the company’s Chief Executive Officer, Matt Furlong.

Matt Furlong — Chief Executive Officer

Thank you. It’s good to be with everyone today. I want to start by thanking our entire team for all of their hard work, given the pace at which the organization is changing. I’ve had the chance to meet a number of team members across our stores, fulfillment centers and home office. And I look forward to meeting more in the coming weeks and months. We appreciate how everyone is stepping up and embracing GameStop’s new operating principles.

Since you last heard from us in June, our refresh Board of Directors and new management team have settled in. We now have unified leadership fully focused on two long-term goals, delighting customers and delivering value for stockholders. In addition to focusing on long-term opportunities, we took a number of steps over the past quarter to fortify the company’s infrastructure and technology.

We are focused on positioning GameStop to scale, while obsessing over competitive pricing, expansive selection and fast shipping. Our actions included continuing to add technology talent across the organization, including individuals with experience in e-commerce, UI/UX operations and supply chain. We also continued to expand our fulfillment network by adding a 530,000 square foot facility in Reno, Nevada. This new facility, which is expected to be operational next year, will position us to further expand selection and expedite shipping. With this addition, the company’s fulfillment network will span both coasts of the continental US for the first time. Our new 700,000 square foot facility in York, Pennsylvania also began shipping orders during the quarter.

We grew our catalog by adding new products and leading brands across consumer electronics, collectibles, toys and more. We signed a lease on a new customer care facility in South Florida and started adding talent to that team as we continue to build out customer care operations in the US. Lastly, we further strengthened our balance sheet and capital position by raising more than $1.1 billion in net proceeds from the June ATM program.

Let me now turn to our financial results for the quarter. Net sales increased 25.6% to $1.183 billion compared to $942 million during the same period in 2020. We achieved this growth, while overcoming a roughly 9% reduction in our global store fleet, due to de-densification efforts and ongoing store closures across certain international markets due to the pandemic. We believe net sales of the primary metric by which stockholders should have set the company’s execution. SG&A was $378.9 million or 32% of sales compared to $348.2 million or 37% of sales in last year’s second quarter. Adjusting for severance and certain other costs, our adjusted SG&A was $372.3 million or 31.5% of sales compared to $336.9 million or 35.8% of sales during the same period last year. The 430 basis points of leverage was primarily driven by store reopening after widespread shutdowns due to the pandemic in Q2 2020.

We reported a net loss of $61.6 million or $0.85 per diluted share compared to a net loss of $111.3 million or loss per diluted share of $1.71 in the prior year’s second quarter. Our adjusted net loss was $55 million or $0.76 per diluted share compared to adjusted net loss of $92 million or a loss of $1.42 per diluted share in the fiscal 2020 second quarter. Our global store count was 4,642 at the end of the quarter.

Turning to the balance sheet, we ended the quarter with cash and restricted cash of $1.775 billion, which is just over $1 billion higher than the end of the second quarter last year. As we announced in June, we raised approximately $1.1 billion in net proceeds through the issuance of 5 million shares of common stock under an ATM. We intend to continue using those proceeds for general corporate purposes, as well as for investing in growth initiatives and maintaining a strong balance sheet. As a result of the ATM, total shares outstanding are now approximately 75.9 million. At the end of the quarter, we had no borrowings under our asset-based revolving credit facility and no long-term debt other than a $47.5 million low-interest unsecured term loan associated with the French government’s response to COVID-19.

Debt levels compared to the second quarter of last year were down $424.7 million. Capital expenditures for the quarter were $13.5 million bringing year-to-date capex investments to $28.2 million, a number we anticipate will increase as the company continues investing in growth initiatives. In the second quarter, cash flow from operations was an outflow of $11.5 million compared to an inflow of $192.8 million during the same period last year, largely due to the investments in inventory we are making to drive sales growth.

In terms of our outlook, we are not providing formal guidance at this time. Thank you again for your support and interest in GameStop.

Operator

[Operator Closing Remarks]