GameStop Corp. Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended July 31, 2021 (GameStop fiscal 2021 second quarter), not 2020 Q2 as stated in the request metadata. The quarter and comparative quarter each comprised 13 weeks; the six-month periods comprised 26 weeks. Amounts are in U.S. dollars.
Business context and reporting period
GameStop sells games, entertainment products and technology through stores and e-commerce in the United States, Canada, Australia and Europe. Management described a transition from video game retailing toward a broader technology and e-commerce business, with initiatives in product expansion, fulfillment, customer service and technology. Results are seasonal, with the largest share of sales generally in the fourth quarter.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $1,183.4 million | $942.0 million | $2,460.2 million | $1,963.0 million |
| Gross profit / margin | $320.9 million / 27.1% | $252.2 million / 26.8% | $651.0 million / 26.5% | $534.6 million / 27.2% |
| Operating loss | $58.0 million | $85.6 million | $98.8 million | $193.6 million |
| Net loss | $61.6 million | $111.3 million | $128.4 million | $277.0 million |
| Loss per diluted share | $0.85 | $1.71 | $1.85 | $4.28 |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $(30.3) million | $143.5 million |
- Q2 sales rose 25.6%; hardware and accessories grew to $609.6 million from $441.6 million, collectibles to $177.2 million from $113.9 million, while software increased to $396.6 million from $386.5 million. Management attributed higher sales mainly to new console demand, Nintendo product sell-through and increased store traffic versus pandemic-affected prior-year operations.
- Q2 gross margin improved 30 basis points, which management attributed to a shift toward higher-margin categories as stores reopened. First-half gross margin declined 70 basis points, reflecting greater sales of lower-margin console hardware and higher freight and credit-card costs associated with e-commerce.
- Q2 SG&A was $378.9 million, up 8.8% year over year, but fell to 32.0% of sales from 37.0%. First-half SG&A was $749.2 million, up 2.0%, and 30.5% of sales versus 37.5%. Transformation-related severance, advisory and transaction expenses contributed to costs; lower store payroll and occupancy costs and 480 permanent store closures since August 1, 2020 partly supported expense leverage.
- At July 31, 2021, cash and cash equivalents were $1,720.4 million, compared with $735.1 million a year earlier and $508.5 million at January 30, 2021. Total current assets were $2,657.0 million and current liabilities $1,194.3 million.
- First-half cash used in operations was $30.3 million; investing used $28.3 million, including $28.2 million of capital expenditures. Financing provided $1,203.7 million, primarily from equity issuance.
- Total debt was $47.5 million, consisting of French term loans extended to 2026. GameStop repaid $73.2 million of 2021 Senior Notes and redeemed $216.4 million of 2023 Senior Notes; the latter incurred a $17.8 million make-whole premium. There were no Revolver borrowings; availability after the facility’s availability reduction was $100.9 million. The company reported compliance with its covenants.
- During the first half, the company sold 8.5 million shares through ATM offerings, receiving $1.67 billion in aggregate net proceeds. Shares issued and outstanding were 75.9 million at July 31, versus 65.2 million a year earlier.
Outlook, commentary, risks and unusual items
- No specific financial guidance was provided. Management said it expected adequate liquidity for the next 12 months and the foreseeable future, while intending to fund working capital, transformation and growth initiatives, category expansion, capital expenditures and other corporate purposes.
- Management expects to continue incurring transformation costs. It also emphasized that the pandemic’s future effects remain uncertain, including possible impacts on store operations, customer demand, supply chains, product availability and cash flows. Most stores had returned to normal operations during Q2, though some Australian stores experienced temporary closures.
- Key business risks include competition and the shift toward digital game downloads, dependence on timely console and game releases and supplier allocations, freight and supply-chain disruption, consumer spending and holiday-season performance, execution of the e-commerce and transformation plans, and the ability to transfer sales from closed stores. The company also disclosed extreme volatility in its stock price and the possibility of short squeezes and future share sales.
- On May 26, 2021, the SEC requested voluntary production of documents concerning trading activity in GameStop securities and securities of other companies, and later requested additional documents. GameStop said it was cooperating fully and did not expect the inquiry to adversely affect it.
- The company maintained a full valuation allowance on net deferred tax assets and reported a $157.8 million U.S. federal income-tax receivable at July 31, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether sales growth and gross-margin performance persist after the new-console launch effects and pandemic-related comparisons.
- Whether the transformation and e-commerce investments improve profitability, and how recurring severance, advisory, fulfillment and freight costs evolve.
- How operating cash flow and working-capital needs develop, particularly through the seasonal holiday quarter, given first-half operating cash outflow.
- The use of ATM proceeds, potential further equity issuance, and the effect of share-based awards and tax-withholding payments on cash and shareholder dilution.
- Developments in console and game supply, store closures, the SEC inquiry and any related legal or regulatory disclosures.