GameStop Reports Q3 2017 Results Boosted By Strong Demand For Switch

GRAPEVINE, Texas, Nov. 21, 2017 (GLOBE NEWSWIRE) -- GameStop Corp. (NYSE:GME), a global family of specialty retail brands that makes the most popular technologies affordable and simple, today reported sales and earnings for the third quarter ended October 28, 2017.

“Our third quarter sales results were driven by strong software demand and continued momentum for Nintendo Switch and collectibles,” said Dan DeMatteo, interim chief executive officer. “As we enter the fourth quarter, we are encouraged by the initial customer response to Microsoft’s Xbox One X, and believe that the holiday season results will be driven by new console hardware and collectibles. Our Technology Brands AT&T Wireless business underperformed our expectations for the third quarter and we anticipate that the fourth quarter results will be highly dependent on the availability of Apple’s next-generation iPhone X.”

Third Quarter Results
Total global sales increased 1.5% to $1.99 billion (flat in constant currency), resulting in consolidated comparable store sales growth of 1.9% (+0.6% in the U.S. and +4.6% internationally). New hardware sales increased 8.8%, led by demand for Nintendo Switch, and new software sales increased 5.4% driven by a strong title lineup. Pre-owned sales declined 2.4%. Worldwide omnichannel sales increased by 38.6% on the strength of new hardware sales.

Digital sales and non-GAAP digital receipts increased 11.9% and 8.3%, respectively, excluding the third quarter 2016 revenues from Kongregate which was sold in July 2017. On a reported basis, digital sales declined 16.8% to $37.2 million, while non-GAAP digital receipts increased 1.8% to $263.7 million.

Collectibles sales increased 26.5% to $138.4 million, driven by continued expansion of licensed merchandise offerings both domestically and internationally. The Collectibles business is on track to meet its 2017 revenue target of $650 million to $700 million.

Technology Brands sales decreased 10.2% to $194.2 million, driven primarily by the later than expected release of Apple’s iPhone X and the previously disclosed change in AT&T’s dealer compensation structure. Operating earnings decreased 23.4% to $18.0 million. Technology Brands adjusted operating earnings were $11.2 million, a 52.3% decrease compared to $23.5 million in the prior-year quarter.

GameStop’s third quarter net earnings were $59.4 million, or $0.59 per diluted share, compared to net earnings of $50.8 million, or $0.49 per diluted share in the prior-year quarter. The third quarter results include a benefit of $6.8 million ($4.3 million, net of tax) related primarily to a reduction of previously accrued contingent purchase price consideration and lease obligations for previously closed stores in our Technology Brands AT&T Wireless business.

Excluding this gain, GameStop's adjusted net earnings for the third quarter were $55.1 million, compared to adjusted net earnings of $50.8 million in the prior-year quarter. Adjusted diluted earnings per share were $0.54 compared to adjusted diluted earnings per share of $0.49 in the prior-year quarter. The Company benefited from a lower effective tax rate resulting from the recognition of discrete tax items during the quarter, positively impacting diluted earnings per share by $0.11.

A reconciliation of non-GAAP results, including adjusted net income, operating earnings and Technology Brands operating earnings to its closest GAAP measure is included with this release (Schedule III).

Credit Agreement Amendment
On Monday, November 20, 2017, the company entered into an amendment to its existing asset based credit facility. The amended agreement contains more favorable terms, extends the maturity date of the facility to November 2022 and increases the capacity under the credit facility from $400 million to $420 million to allow for increased flexibility for future needs of the business.

Capital Allocation Update
On November 17, 2017, GameStop’s board of directors declared a quarterly cash dividend of $0.38 per common share payable on December 12, 2017 to shareholders of record as of the close of business on December 1, 2017.

Earnings Outlook
The company is reiterating its full-year diluted earnings per share guidance of $3.10 to $3.40, and expects full-year comparable store sales to increase in the low-to-mid single digits.