Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q.
The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In some cases, forward-looking statements can be identified by the use of terms such as "anticipates," "believes," "continues," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "pro forma," "seeks," "should," "will" or similar expressions. Forward-looking statements include our current assumptions, expectations or forecasts of future events.
Forward-looking statements are based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements.
All forward-looking statements included or incorporated by reference in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to update or revise any of these forward-looking statements for any reason, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q, except as required by law.
OVERVIEW
GameStop Corp. ("GameStop ," "we," "us," "our," or the "Company"), aDelaware corporation established in 1996, is a leading specialty retailer offering games and entertainment products through its e-commerce properties and thousands of stores. We operate our business in four geographic segments:United States ,Canada ,Australia andEurope . Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. The fiscal year endingJanuary 29, 2022 ("fiscal 2021") and the fiscal year endedJanuary 30, 2021 ("fiscal 2020") each consist of 52 weeks. The discussion and analysis of our results of operations refers to continuing operations unless otherwise noted. Our business, like that of many retailers, is seasonal, with the major portion of the net sales realized during the fourth fiscal quarter, which includes the holiday selling season. Impact from COVID-19 Throughout fiscal 2020, we temporarily closed stores or limited store operations at various times across our four operating segments. During the first quarter of fiscal 2021, temporary closures were limited to certain jurisdictions inEurope andCanada . Although certain stores experienced temporary closures during the 13 weeks endedMay 1, 2021 , some of our stores offered and continue to offer curbside pick-up. We remain vigilant in our compliance with COVID-19 regulations across our operating regions. We continue to prioritize the health and safety of our customers and team members, including enhanced cleaning measures and expanded use of personal protective equipment at our stores, shared service centers and distribution centers across all geographies where we operate. We expect that we will continue to incur costs to provide these measures well into fiscal 2021. The COVID-19 pandemic continues to impact our business, operating results, cash flows and financial conditions. Factors impacted by the COVID_19 pandemic include, but are not limited to, the following, many of which are not within our control: •the geographies impacted by the virus; •changes in consumer confidence and consumer spending habits, including spending for the merchandise that we sell; •negative trends in consumer purchasing patterns due to changes in consumers' disposable income, credit availability and debt levels; •the availability of additional economic stimulus programs introduced by the various governments where we operate; •disruption to our supply chain including the manufacturing, supply, distribution, transportation and delivery of our products; •delays in the release of key video game titles; and •a slowdown in theU.S. and global economies, and the timing of the post-pandemic economic recovery. See Note 2, "COVID-19 Impacts" for further details. 15
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Table of Contents Industry Overview Growth in the gaming industry is generally driven by the introduction of new technology. Gaming consoles have historically launched in five to seven-year cycles as technological developments provide significant improvements in the gaming experience and add other entertainment capabilities. Consumer demand for gaming consoles is typically the highest in the early years of the cycle and the weakest in the latter years. The current generation of consoles includes the Sony PlayStation 5 (launched inNovember 2020 ), Microsoft Xbox Series X (launched inNovember 2020 ) and the Nintendo Switch (launched inMarch 2017 ). The sale of video games delivered through digital channels and other forms of gaming continue to grow and represent an increasing percentage of video game sales. We currently sell various types of products that relate to the digital category, including digitally downloadable content ("DLC"), full game downloads, Xbox LIVE, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and prepaid subscription cards. We have made significant investments in our e-commerce and store functionality to enable our customers to access digital content to facilitate the digital sales and delivery process. We plan to continue to invest in these types of processes and channels to grow our digital sales base and enhance our market leadership position in the video game industry. We have historically reported comparable store sales which is a measure commonly used in the retail industry and indicates store performance by measuring the growth or decline in sales for certain stores for a particular period over the corresponding prior year's comparable period. The methodology of calculating comparable store sales varies across the retail industry and our methodology may not be the same as other retailers' methodology. Our comparable store sales are comprised of sales from our stores operating for at least 12 full months as well as sales related to our websites and sales of pre-owned merchandise to wholesalers or dealers. Our comparable store sales methodology excludes from the comparable store base stores that were closed for 14 consecutive days or more and where curbside delivery was not available to customers for such stores. Comparable store sales for our international operating segments exclude the effect of changes in foreign exchange rates. As a result of the extensive temporary store closures due to the COVID-19 pandemic, we believe comparable store sales are not a meaningful metric for the 13 weeks endedMay 1, 2021 and we have not included comparable store sales in the discussion of our Consolidated Results of Operations below. We have included a discussion of net sales in our Consolidated Results of Operations as we believe net sales is the more appropriate metric to evaluate the performance of our business at this time. This metric is consistent with the metric used by management for internal reporting and analysis to measure performance of our stores. As we continue to reposition during fiscal 2021, we will continue to evaluate the metrics that we believe will most effectively inform investors of our performance, development and outlook. BUSINESS STRATEGY Our strategic plan is anchored on the following tenets and designed to first stabilize and optimize our core business while at the same time, pursuing strategic initiatives to transformGameStop for the future by expanding our addressable market and product offerings to drive growth in the gaming and entertainment industries. Stabilize and Optimize the core business. We are improving the efficiency and effectiveness of operations across our organization, including cost restructuring, inventory management optimization, adding and growing high margin product categories, and rationalizing our global store base. Prioritizing efforts to optimize our store base and improve the fundamental operations of our business yielded the net closure of 693 stores in fiscal 2020 and an additional 118 stores in first quarter fiscal 2021, and included both the divestiture of the Simply Mac business and wind down of underperforming operations inDenmark ,Finland ,Norway andSweden . Improved inventory management drove a significant increase in inventory turns and as a result, in working capital, while an intense focus on organization structure and expense reductions yielded a$16.2 million or 4.2% reduction in reported selling, general and administrative expenses in the first quarter of fiscal 2021 as compared to the first fiscal quarter of 2020. We continue to explore strategic options for our European businesses, which may include further store closings, exiting unprofitable businesses, or investing in e-commerce capabilities. TransformGameStop into a customer-obsessed technology company to delight gamers. We are taking the following steps in fiscal 2021: •Investing in technology capabilities, by in-sourcing talent, revamping systems, and evaluating next-generation assets; •Building a superior customer experience, including beginning to establish aU.S. -based customer care operation; •Expanding product catalog and addressable market including certain emerging categories that represent natural extensions; •ModernizingU.S. fulfillment operations to improve speed of delivery and service; We believe these transformation efforts represent an important aspect of our continued business to enable long-term value creation for our stockholders. Connected to our transformation efforts, we have incurred and may continue to incur severance, store closure costs and expenses for consultants and advisors. See "Consolidated Results from Operations-Selling, General and Administrative Expenses" for further information. 16
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