GameStop (GME) 2Q16 Earnings Call Notes

GME has diversified into digital, mobile, and collectibles as physical gaming has declined

“If we sit here and reflect as we think about the decline in physical gaming of almost 40% from its peak in 2008 and 2016, our strategy of diversification has paid off… our new growth businesses of digital, mobile and collectibles make GME a very compelling investment for the future as we grow 3% to 5% annually to 2019 as we projected at our Investor Day.” Paul Raines – Chief Executive Officer

 

Collectibles is a large, fragmented market that presents a growth opportunity

“it’s over $100 billion business. It’s North America. The piece that we’re focused on which is really sort of movies TV, video game, pop culture licensees, is around $11 billion… it’s highly fragmented. There’s no single player that has more than probably 10% or so share in this category. And its split up a bunch of various kinds of players from mass merch especially to retail to online, a lot of one man shops and so on.” Rob Lloyd – Chief Financial Officer

 

GME closed nine game store and acquired five hundred tech and mobile stores this quarter

“we closed a net of nine video game stores and now have 3,945 in the US and 2,009 internationally. We acquired 507 AT&T branded stores and opened a net of five Technology Brand stores, now have 1,566.” Rob Lloyd – Chief Financial Officer

 

Tech and mobile segment utilizes GameStop’s core competencies

“Technology Brands has been a deliberate focus on behalf of our leadership team to diversify GameStop’s revenues… Since its inception in October of 2013, Technology Brands has successfully leveraged GameStop’s core competencies in real estate expertise, multiunit management, buy, sell, trade and capital deployment to create one of the largest consumer technology specialty retail chains in America.” Jason Ellis – Senior Vice President of Technology Brands

 

As publisher, retailer, and digital partner, GME saw high margins on its first video game

“Playing the role of publisher, exclusive physical retailer and digital profit partner, GameStop is also proving a business model where it can invest smartly in new IPs and enjoy higher margins on the sale of these titles. Our pro forma gross margin for Song of the Deep is 63%. Game Trust has a strong lineup of games in development with innovative developers… These and future unannounced partnerships will continue to establish Game Trust as a leading disrupter in the $1 billion plus independent game market.” Tony Bartel – Chief Operating Officer

GameStop (GME) Q2 2016 Results

Mike Hogan – Executive Vice President, Strategy & Business Development

Accessibility of products is driving behaviour change in customers

“I think outside of the U.S. there really aren’t any specialty chains that specialize in collectibles and licensed merchandise. And so worldwide we’ve just added 6,000 stores to this market, making the product much more accessible to the average consumer who might not in the past have actually looked for this type of product… so what we’ve seen as we’ve expanded this product line, what we’re seeing people really shift their behaviors. And so as Game of Thrones will come out and people will come into our stores and buy 50 to 100 products for Game of Thrones parties to launch the premier. And so the culture and people’s behavior is actually starting to change because we’ve made the product so accessible.”

Tony Bartel – Chief Operating Officer

They have been taking advantage of the Pokemon craze

“…we capitalized on the global popularity of Pokémon GO by quickly identifying on social media our PokeStops and Poke Gyms. In addition, we also lured both Pokémon and players to our stores through coordinated and well disseminated effort. As a result, the 462 stores where we had Pokémon related events ended up more than doubling their sales of Pokémon related items during the promotional period.”

Hardware and software sales were down but are expected to pick up in H2

“…physical hardware sales were down 33% and software sales were down 18% during the quarter due to weaker innovation in the video game category. To put this into perspective, the top five games launched in Q2 of 2015 generated $253 million, while the top five games launched in Q2 of 2016 only sold $194 million, a 23% decrease….we expect this to turn positive in the back half of the year based on console and VR launches and the strong slate of games detailed on page 11 in the online material.”

Virtual Reality: High demand, low supply

“VR [Virtual Reality] is suffering from…a low production that is not meeting demand. But we see tremendous traffic when we run these events in our stores, and another element of just how much demand there is, we had the quickest sell-out of preorders in our history the last time we were able to put up PS VR for preorder, we were out literally in five minutes. So there is tremendous demand and in the back half of the year, as people come in, as they talk with our associates, they’re incredibly knowledgeable and certified in this, we think it will be a good traffic driver far beyond the sales that it will generate.”.

Rob Lloyd – Chief Financial Officer

On comps

“Comparable store sales decreased 10.6% for the quarter driven by the decline in hardware and software. U.S. comp was down 12.5% and international comps were down 5.9%. The negative hardware and software impact caused a comp decline of just over 12%. The positive impact of collectibles on the comp was approximately 2.5%. Omnichannel sales increased 16% during the quarter.”

Jason Ellis – Senior Vice President of Technology Brands

This quarter is on more than just the new iphone

“For this quarter in particular, iPhone is important to the quarter and obviously any Apple product launch will drive traffic to the stores. But thanks to the diversification in the retail stores, we’re also excited about the other products like DIRECTV with NFL Sunday Ticket, so there’s more than just iPhone in this quarter that will drive traffic.”

Gamestop 3Q15 Earnings Call Notes

Julian Paul Raines – Chief Executive Officer

It’s not easy to reinvent a company from an established base

“you can imagine, Seth, for us, a company that’s in transformation of the kind we’re in, it’s a trade-off everyday. How do we disinvest in the core, as the core becomes a smaller part of our business and how do we invest in these new businesses. And we’ve had our struggles on some of these.”

The install base for the consoles is greater than it has been, people can’t all be just streaming Netflix

“The other thing too is that the install base on hardwares is so much greater than it has been. You’ve got believe there is going to be people chasing software for that install base. I mean they can’t all be streaming Netflix, right. There’s got to be some people playing video games on all those consoles. So that gives us a little bit of optimism.”

It’s hard to find categories that are lower margin than video gaming

“the reason we’re in these categories, if you go back to our strategic work, the reason we’re in these categories is because they are higher margin than video gaming. It would be hard to find categories, by the way, that are lower margin than video gaming by the time you add in the hardware. So Tech Brands, Apple and AT&T as well as Loot are additive to our gross margin. So that’s going to create more profitability.”

Robert Lloyd – Executive Vice President and Chief Financial Officer

Tony Bartel – Chief Operating Officer

Console sales up 31% y/y in first two weeks of November

“Sales of Microsoft’s Xbox One and Sony’s PlayStation 4 are up 31% during the first two weeks of November. We continue to dominate the new console cycle, selling over one-half of our Xbox One and PS4 software, generating a 53% share during the quarter.”

Star Wars Battlefront got off to a slow start

“Sure. And I think when it come to Star Wars, let me reiterate what Rob, said, I think Star Wars Battlefront got off to a slow start. Given the buzz around the movie, we anticipate that this game is going to be a very strong game, when the movie launches in mid-December. Not to mention the fact that we have it prominently displayed in our Black Friday, and in fact we’re the only retailer that has it with significant discount, which is also going to guide sales…So while Star Wars is off to a bit of a slow start, we do think that it is going to rally very strong, as we get to closer to the movie.”

Michael Mauler – Executive Vice President and President, International

Michael Hogan – Executive Vice President, Strategic Business and Brand Development

Michael Buskey – Executive Vice President and President, U.S. Stores

Matt Hodges – Vice President, Public and Investor Relations

Gamestop 4Q13 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

Must sustain a greater pace of change than the environment

“we believe that GameStop has to maintain a higher rate of internal change than the environment that surrounds us. And we believe that philosophy has served us well during the last few years of declines in our category.”

Big comp growth driven by new consoles

“In the fourth quarter, total sales increased 3.4% from the fourth quarter of 2012 to $3.68 billion driven by the successful launch of the PlayStation 4 and the Xbox One. Comparable store sales for the quarter increased 7.8%.”

Expecting continued growth in 2014

“For the full year, we expect revenue to increase between 8% and 14% and comps to increase 6% to 12%. Sales and comp growth will again be driven by hardware sales. However we also expect sales growth in each of our categories. Given the growth we expect during the year, we expect full year net income to grow between 12% and 22%.”

Seeing new investment in consoles with refresh

“as consoles return to the category, we’re seeing a lot of new investment. That’s very important because for years, we watched investment flow out of consoles into other forms of gaming and electronics. And now you’re seeing, right Tony, a tremendous amount of projects there”

Plan has been to close 2% of stores per year

“we would begin to consolidate our store footprint in United States by 2% a year. And so this is consistent if you go back and look at our scripts from last year and the year before.”

Value buyers come in in the first 2-3 years of a console cycle

“historically the pre-owned business will have very strong growth in the first two to three years of a console cycle. There is going to be a lot of demand from the value people. So, the new game buyer will be buying all the new consoles and software. There is a value buyer that comes back into GameStop and that value buyer we want to serve them more broadly than we ever have.”

Power up rewards program

“for years we’ve been only in this video game business and we’ve done incredible job, but we look around and say as PowerUp Rewards becomes as dominant CRM program people are coming to our door going, hey, can you distribute some of our other technology products and it’s working pretty well”

Seeing adoption of consoles among more than just core gamers

“We still see really strong demand and it’s a very, very broad group. So, it’s not just a core gamer here, it’s definitely broadened across all of our segments.”

Full game download still a very small percent of our business

“here is no doubt that there is a lot more going on from a digital sharing perspective as I’ve referenced by our PS4 sales. We are seeing an uptick in the sale of digital games at GameStop. The most, the highest growth item now that we’re seeing is the content that is now pretty well fold with every significant launch that takes place. So we are seeing an ever increasing amount of DLC sold. Our penetration of DLC sold on every launch is increasing. So, we see a lot of that. Obviously we’re doing a lot to drive the identification of that over. But in terms of full game download that still remains a very, very small percent of our business. And so, we see it more on the downloadable content side.”

We welcome full game downloads

“we like the idea, right, of selling full game digital content, we’re pretty good at it at this point. But I would say it’s still like technology versus chronology. And don’t forget, the games are getting bigger.”

Gamestop 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings.

“The console video game market returned to growth during the third quarter and as we forecasted, is one of the most exciting categories in retail headed into the holiday season. Our comp growth of over 20% is the highest quarterly comp growth since May of 2008, and our earnings per share of $0.58 exceeded our guidance and grew by 52.6%.”

“As part of our continuing strategic work, we have spent time in the past year studying the ways in which technology products are distributed to consumers outside the gaming space. We believe synergies exist with our model, and it is clear to us that we have developed a platform of transferable core competencies for technology retailing at GameStop. Our real estate group manages and understands thousands of zip codes across America with deep landlord relationships and leverage, particularly in secondary or white space markets. Our human resources function is able to create hiring and training events in any geography. Our refurbishment operations position us to be leaders in buy-sell-trade in video games, electronics and mobile devices. Our global PowerUp Rewards loyalty program gives us deep data and insight around over 33 million consumers of technology products in stores and online. Lastly, our capital process allows us to evaluate investments in specialty retail with precision and velocity.”

“We invested heavily on our associates during the third quarter, including taking every one of them through a 3-hour certification process on the 2 consoles. We know that they are the most prepared staff in all of retail to help consumers make a well-informed console decision and to make sure that they have all the games and related accessories to have a great gaming experience.”

“We know omnichannel is driving total GameStop sales. 26% of gamestop.com visitors who do not buy online make a purchase in-store within 48 hours of their online visit, and 80% of survey customers stated they plan on visiting a store to purchase an item they saw on gamestop.com.”

“I think one of the things we’ve seen in the past is that with each introduction of a new console, pre-owned growth actually accelerates post that. And one of the reasons is because it provides a great value, right? These are going to be very attractively priced systems and practically priced games, and so in anticipation of that growth, we think that the opportunity to get some additional inventory is a great thing. ”

“anytime you’re seeing a base of 25 million, 26 million people and you’re seeing a very, very high percentage, 2/3 have been indicating very positive purchase interest, what it says to us is that the demand is very strong”

Gamestop 4Q12 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

$GME 4Q12 Conference Call Notes

“Without question, a very challenging year for the console gaming industry. NPD data for the industry indicates a 21% decline in software and a 25% decline in hardware in the past year in the United States, with similar numbers in our other geographies. GameStop outperformed the industry globally, confirming once again the unique nature of our business model and position in the market.”

“We have returned over 100% of our significant cash flow for the last 3 years to shareholders, and expect that strategy to continue.”

“Comparable store sales for the year were down 8%, with U.S. comps down 8.7% and international comps down 6.4%”

“we expect the first half of the year to be very difficult, as we wait for the next console cycle to begin, and face the declining demand that typically occurs after new consoles are announced. With Grand Theft Auto V, Battlefield IV releasing in the third quarter, and the PlayStation 4 launching in the fourth quarter, we expect a return to growth for the back half of the year.”

“Our consumer research shows extremely strong consumer interest in the new consoles.”

“purchase interest for the new PlayStation 4 is very strong. In fact, across a wide range of products, including new smartphones, new tablets, laptops, et cetera, the PlayStation 4 is by far the top scoring item.”

“There’s been a lot of talk about how it was the end of the console era, there would never be another console, and that now has become, will these consoles be as compelling? What we believe is, that there’s been a lack of innovation because of the length of the cycle. And we’re in a Tablet business where we see innovation really rapid-fire, and in the Phone business, we see a lot of innovation. So to us, the most exciting part of what’s coming is the fact that we’re reintroducing innovation to a massive install base. And Mike Hogan’s intent to purchase data would tell you, there’s a lot of pent-up demand.”

“the power that the new consoles have are really driving a whole new wave of developer innovation. So based on early games that we’ve seen running on the new platform, the physics are absolutely amazing. I mean, it — the games are getting to be so realistic and movie-like, it’s absolutely amazing. Social, the tie-in of social features is very strong, the ability to share the game, the kill shot that you just executed, and to share that with your friends immediately is amazing. And then the connectivity, I think, has come a long way. Gaming, as you know, is incredibly social. I think the new platforms add to that, and that connectivity will be easier than it’s ever been. And those are definitely the key things. I think that the controller that Sony has rolled out, the proprietary controller, the new controllers that they have, is very clever and I think it’s very — it will make gaming a whole new experience.”

“all the feedback from developers is, [playstation 4] is a tremendously friendly device to code for, and to really create innovation for. So they’ve — they’re really making a big push around making it a developer-friendly gaming device.”

“consumers have a very strong point of view around this. They want portability of their games, and they like trade credits, et cetera. So that’s been clear, that’s not a debate, that’s obvious.”

“60% of consumers have serious concerns that there is no transferability on games”

“Don’t forget that trade credits make video gaming a billion-dollars bigger business, because we provide that trade credit back.”

“The amount of customers who will bring us electronics to buy a PS4 is going to be a big number. And all of our console partners want a part of that, and they see the benefits of that.”

“I think, for me, the real benchmark is the fact that our PowerUp members are saying that they’re much, much more likely, and more excited about buying a PlayStation 4, even than around getting a new smartphone, a new tablet, a new laptop, all the other things they could buy.”

“I think where you’re really going to see Wii U take off is when there is a strong first-party title, that’s what we’ve always seen. And the fact that we really did launch without a strong first-party title, I think we’re seeing the ramifications of that today”

“And don’t forget, Nintendo has a massive IP.”