Gamestop (GME) Earnings Report: Q2 2015 Conference Call ... · Company Name: GameStop Corp Company Ticker: GME Sector: Services Industry: Retail Event Description: Q2 2015 Earnings

CompanyName:GameStopCorpCompanyTicker:GMESector:ServicesIndustry:Retail

EventDescription:Q22015EarningsCallMarketCapasofEventDate:4.84BPriceasofEventDate:46.2

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

Gamestop(GME)EarningsReport:Q22015ConferenceCallTranscriptThefollowingGamestopconferencecalltookplaceonAugust27,2015,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

PaulRaines;GameStopCorporation;CEORobLloyd;GameStopCorporation;CFOTonyBartel;GameStopCorporation;COOMikeMauler;GameStopCorporation;President-InternationalMikeBuskey;GameStopCorporation;President-USStoresMikeHogan;GameStopCorporation;EVP-StrategicBusiness

OtherPart icipants

ColinSebastian;RobertW.BairdandCompany,Inc.;AnalystBrianNagel;OppenheimerandCo.;AnalystMikeOlson;PiperJaffrayandCo.;AnalystArvindBhatia;Sterne,AgeeandLeach,Inc.;AnalystCurtisNagle;BofAMerrillLynch;AnalystDavidMagee;SunTrustRobinsonHumphrey;AnalystSethSigman;CreditSuisse;AnalystScottTilghman;B.RileyandCompany;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodday,everyone.WelcometoGameStopCorporation'ssecondquarter2015earningsconferencecall.Asupplementalslidepresentationisavailableatinvestor.GameStop.com.Attheconclusionoftheannouncement,aquestion-and-answersessionwillbeconductedelectronically.

(OperatorInstructions)

IwouldliketoremindyouthatthiscalliscoveredbytheSafeHarbordisclosurecontainedinGameStoppublicationdocumentsandisthepropertyofGameStop.ItisnotforrebroadcastorusebyanypartywithoutpriorwrittenconsentofGameStop.

Atthistime,IwouldliketoturnthecallovertoPaulRaines,CEOofGameStop.Pleasegoahead.

PaulRaines (CEO):

Thankyou,Operator,andwelcometothesecondquarterearningscallforGameStop.Asalways,wearegratefultoourassociatesaroundtheworldfortheirperformanceanddedicationtocustomersthisquarter.TheyarethesecrettoGameStop'ssuccess.

JoiningmetodayonourcallareRobLloyd,ChiefFinancialOfficer;TonyBartel,ChiefOperatingOfficer;MikeMauler,PresidentofInternational;MikeHogan,ExecutiveVicePresidentofStrategicBusiness;MikeBuskey,PresidentofUSStores;andMattHodges,ourVicePresidentofPublicandInvestorRelations.




Wehadagreatquarter.Earningspersharegrowthwaswellaheadofconsensus,growing41%year-over-year.Ourearningspersharegrew41%ontopof144%growthinlastyear'ssecondquarter.

Socompsarestronginthevideogamebusiness,delivering8.1%ontopoflastyear's22%comp.DigitalgrowthwithoutFXwas17.5%andpreownedgrowthwithoutFXwasover5%.

TechnologyBrandsgrewtheirstorecountbyanimpressive182stores,nowstandingat731stores.SpringMobileisnowAT&T'slargestdealerandouracquisitionpipelineisfull.RobandTonywillprovidecoloronthevideogamebusinessandtheTechBrandsmetrics.

Duringthequarter,weclosedonouracquisitionofGeeknetandtheThinkGeek.combrand.WeareveryexcitedaboutthisopportunityandhavespentsignificanttimewiththeGeeknetteamontheintegrationplan.MikeHoganwillsharesomeearlycoloronourprogress.

OurCollectibles,orlootbusiness,hadaverygoodquarter.WhatwasonceanexperimentinAustraliaalittleovertwoyearsagohasturnedintoaglobalbusinessthatisfeedingrapidgrowth.Asweseeopportunities,wewillcontinuetoremodelGameStopstorestogivemorelinearfootagetolootmerchandiseandlesstovideogames,providingusagreatcompetitiveleverforthevideogamepublishers.

IntegrationwithThinkGeekwillonlyhelpthisbusiness.MikeMaulerwillupdateyouonourglobalprogress.

Lastquarter'scapitalallocationwasagaindisciplined,aswepaidourdividendof$0.36pershareandboughtback$60.7millionworthofourstock.

Takingamomenttostepbackandlookatthebusiness,youhavetorecognizethatwehaveaknackforidentifyinganddevelopingopportunitiesintransformationaltechnologyandbusinessacquisitionsthatarepayingoffforshareholders.OurearlyandrapidinvestmentsinrefurbishingmobiledeviceshasturnedintoourTechnologyBrandsunit,thefastestgrowingAT&TandAppledealerinAmerica.

OurabilitytoadaptagreatideafromAustralia,adjustittoAmericanconsumersandrollitquicklyhasturnedintoourstronglineupoflootandcollectiblesproducts.Andourstrongbalancesheetallowsustocapitalizeonthissuccessbyrollingupgreatassets,likeGeeknet.

OurGameStopTechnologyInstitute,announcedinMarchof2014,hasdevelopedanin-storetabletthatisalreadyrollingoutnationallyandwehavedevelopedbeaconsolutionsthatwillsoonbeimplemented,aswell.OurdigitalsolutionsofDLC,Steam,full-gamedownload,KongregateandDigitalGameInformer,amongothers,arecontinuingtogrowandwillprovideanice$1billionbusinessthisyear.UnderpinningallofthesegreatideasisgreatexecutionandthePowerUprewardsprogram.

Itiscleartousnowthatwearefindingnewusesforourbrickandmortarstores,aswellasourwebsites.Andbehindthemisprobablyourbiggestasset,thecustomerdatabehindallourtransactions.

Ourabilitytodiversifyourbusinesshasbeenthecorrectstrategy,buildingonourleadershipinvideogames,whileexploitingourcoretogrowrapidlyindigital,mobile,andcollectibles.Inthemostrecentquarteralone,thosenewbusinessesaccountedforalmost23%ofourgrossprofitandweexpecttoseethatgrow.

Youshouldnotethatour32.9%grossmarginrateforthesecondquarterwasamongthehighestinourhistoryandgrossprofitdollarswereacompanyrecordforthesecondquarter.Othercategories,likepreowned,mayfluctuatedependingonmixandpromotions;butourabilitytodiversifyintoricherlinesofbusinessandproductsisallowingustoincreaseprofitability.




WeprovidedguidanceforQ3thatisslightlydowntomodestlyupandincreasedourfullyearguidancebythesharecountboughtbackinthequarter.Welearnedinourinvestorsurveythatsettingachievabletargetsisimportanttoyouandexpecttocontinuedoingso.

WecontinuetospendalotoftimeinternallyandwithourBoardonourstrategicplan,assessingthesizeofmarketsandtheiradjacencytoourcorecustomerbase.Weseekmoreopportunitiestoleverageourcorecompetenciesofrealestate,humantalent,capital,buy,sell,trade,andPowerUprewardsintoattractivenewsegments.Ahighrateofchangewillcontinuetodefineusandwillprotectourfamily.

IwillnowturnthecallovertoRob.

RobLloyd (CFO):

Thanks,Paul.Goodafternoon,everyone.I'llstarttodaybycoveringthehighlightsofoursuccessfulsecondquarterandthenI'lldiveintosomecoloronthequarter.

Overallresultsexceededourexpectationsagainthisquarterintermsofrevenuegrowth,samestoresales,operatingmargin,netincome,andEPS.Salesincreased1.8%inthequarter,or7.4%excludingFX.Comparablestoresalesincreased8.1%,exceedingthehighendofourguidancerangebyover500basispoints.

Grossmarginsexpanded110basispointsonthestrengthofgrowthandmarginexpansioninMobileandgrowthinCollectibles,leadingtorecordsecondquartergrossprofitof$580.5million.Adjustedoperatingearningsincreasedover65%forthequarter,drivenbyoursalesgrowthinCollectiblesandmarginexpansioninMobile.

Duringthequarter,weincurredone-timechargesof$9.1million,primarilyrelatingtotheGeeknetacquisitionandTechBrandsexpansion,whichincludedRadioShackstoreacquisitioncosts.

SG&Aadjustedtoexcludechargesasapercentageofsaleswas27.3%,downslightlyfrom27.5%intheprioryearquarter,despiteinvestmentsupportingTechBrands'expansion.Interestexpenseincreased$4.5millionduetothe$350millionindebtoutstanding.Adjustednetincomeincreased34.6%andadjustedEPSincreasedover40%.Foreigncurrencymovesreducedsalesnearly$100million,buthadminimalimpactonEPS.

Nowlet'slookatsalesandmarginduringthequarterforsomeofthecategories.Hardwaresalesdecreased2.2%,butincreased3.7%excludingFX,becauseofstrongdemandsforthePlayStation4andXboxOne.IntheUS,wesold42%morenextgenconsolesthaninthesecondquarterof2014,leadingtotheoutperformanceinthecompresults.

Softwaresalesdeclined6.0%,butincreased0.7%excludingFX,asweovercamethecomparisontoWatchdogsandMarioCart8fromlastyearwithstrongperformanceonWitcher3andBatmanArkhamKnight.Preownedrevenuegrew0.5%,orplus5.1%excludingFX,aswesawcontinuedgrowthinnextgenpreownedhardwareandsoftware.

Preownedmarginrateswere46.0%,down100basispointsfromtheprioryear,duetohigherrefurbishmentcostsonanincreasedmixofhardwareandaccessoriestradeswhichweredrivenbythesuccessfultrade-upcampaignsweranduringthequarter.

Digitalreceiptsonanon-GAAPbasisgrew11.1%,or17.5%excludingFX,to$199millionforthequarter.Aswesaidintherelease,growthwasledbysalesofDLCforWitcher3andBatmanArkhamKnight.

GAAPdigitalrevenuesdeclined20.5%year-over-year,duetoFXimpactandbecauseofaccountingforKongregateonanetcommissionbasis,aswediscussedinthefirstquartercall.Mobilerevenues




increased26.9%,drivenby62.3%growthinourTechnologyBrandsrevenues,andgrossmarginsincreasedfrom36.1%inQ2lastyearto45.4%.

Aswestatedonthelastcall,aswecontinuetorapidlyexpandourTechBrandsfootprint,therewillbeupfrontinvestmentcostsinordertoensuresuccessfulopenings.

Thiswillimpactshort-termoperatingresults,butwillultimatelyprovidesustainableprofitsfortheCompany.Duringthesecondquarter,weinvestedover$5millionforthe89storesweopenedandforthe90to100storestobeopenedduringthethirdquarter.Q2'sTechBrandsstoregrowthalsoincludedtheacquisitionofthreeAT&Tresellerstotaling93stores,mostofwhichwereacquiredattheendofJuly.

RevenuesintheOthercategoryincreased37.7%to$99.4million,or48.5%growthexcludingFX,aswecontinuetoexpandourCollectiblesbusiness.

Someotherdatapointsareasfollows.Weclosedanetof33videogamestoresaroundtheworld.AsPaulmentioned,weclosedtheacquisitionofGeeknet,includingtheThinkGeekbrandande-commercesite.Theacquisitioncostwas$126millionnetofcashacquired.ThinkGeekwillbeaccretiveinthesecondhalfoftheyear.

Inthequarter,werepurchased$60.7millioninstock,or1.41millionsharesatanaveragepriceof$43.04.Wesurpassedthe$1.8billionmarkincumulativebuybacks,withover71millionsharesacquiredatanaveragepriceof$25.28.Weremaincommittedtoourbuybackprogramandareontracktomeetour2015objectiveofrepurchasingatleast$200millionofstock.

Wealsopaidthesecondquarterdividendat$0.36pershare.Inthelast12months,we'vegeneratedapproximately$500millioninfreecashflowandhavereturned$466millionindividendsandbuybacksandhaveusedanadditional$247milliononacquisitions.

Nowlet'smoveontothirdquarterguidance.Asstatedinourearningsrelease,weexpectsamestoresalestorangefromplus1%toplus4%andrevenuegrowthtorangefromflattopositive4%.Changesinforeigncurrencyratesareexpectedtoagainnegativelyimpactrevenuesbyapproximately$100millionwhencomparedtothethirdquarteroflastyear.

Againthisquarter,weexpectmonthlysoftwareresultsfromNPDtovarydramatically.TheAugusttitlelineupislighterthanlastyear,withMaddenbeingtheonlycomparison.InSeptember,wewillbecomping(Inaudible),whichisaverytoughoverlap,asthisyear'sversionisonlyanexpansionpack.Assassin'sCreedandHaloshouldgiveusafavorablecompinOctober.

Duetoourover-indexingandmarketshareonDestinyfromlastyear,weareexpectingnewsoftwarerevenuestobedowninthethirdquarter.AccordingtoNPD,intheUSnearly3millionunitsofDestinyweresoldacrossfourplatformsinthethirdquarteroflastyear.Thisquarter'smostanticipatedtitleisexpectedtobeHalo5,whichlaunchesverylateinthequarterandwillonlybeavailableononeplatform.

Wealsoexpectaslightdeclineinthepreownedmarginrate,asthemixshiftstonextgenfrompriorgenandaswecontinuetoinvestinrefurbishmentofpreownedconsolestosupportsalesgrowth.Ourrepaircostsremaincomparable,whilepreownedhardwarepricesdeclineovertime.Also,asareminder,salesofnextgenpreownedunitshavealoweroverallmarginthanpriorgenunitsduetohighertrade-inprices,whichistypicalinanewconsolecycle.

Weareforecastingpreownedmargintobebetween44%and46%forthebalanceoftheyear.Overall,weexpecttoexpandgrossmarginscomparedtotheprioryearquarter,asotherareasofourbusiness,suchasMobileandCollectibles,positivelycontributetoourprofits.




DespitetheupfrontinvestmentstosupportthestoreopeningswhichIdescribedearlier,operatingearningsforTechBrandsinthethirdquarterareforecasttobecomparabletotheprioryearquarterandareexpectedtogrowsignificantlyinthefourthquarter.

Weareguidingearningspershareforourthirdquartertorangefrom$0.53to$0.60pershare.Weareexpectinga37%taxrateforthequarter,whichishigherthanwehadinthethirdquarteroflastyear,andwewillhaveapproximately$0.02pershareinadditionalinterestexpense.Youshouldmodel106.7millionsharesoutstandingforthethirdquarterand107millionforthefullyear,basedonbuybacksthroughtheendofthesecondquarter.

Forthefullyear,totalrevenuesarenowexpectedtorangefromflattopositive5%andsamestoresalesarenowexpectedtorangefrompositive2%topositive7%.Afterconsideringbuybackswehavecompletedthusfar,weareraisingourfullyearguidancefromarangeof$3.63to$3.83persharetoahigherrangeof$3.66to$3.86pershare.

IwillnowturnitovertoTonyforhiscomments.

T onyBartel(COO):

Thanks,Rob.

Ourretailoperationshadanotherstrongquarter,aswecontinuetocapitalizeonouruniquespecialtyservicemodelandgrowournew,preowned,anddigitalvideogamebusiness,aswellasourTechnologyBrandsbusiness.Webelievethatservicemattersandthatourbusinessesareexpandingbecausewemeettheneedsofourcustomersbetterthananyofourcompetitors.

Innewvideogames,weagainincreasedshare,asourUSsoftwaregrew1.2%versusadeclineintheoverallmarket.Oursoftwareshareincreasedby1point,andwecontinuetoselloverone-halfofallXboxOneandPS4software.

OurUSnewhardwaredollarsalesgrew13.6%duringthequarterversusadeclineintheoverallmarket,resultingin4pointsofhardwaremarketsharegainduringthequarter.Thecomps[for]launchremainedstronginits22ndmonth,aswehavetripledthenumberofPS4unitsthatweresoldversusthePS3launchandhavenearlydoubledtheXboxOneunitsversustheXbox360launch.

Ourpreownedbusinessoutpacedthenewbusinessandgrewduringthequarter,aswelogged0.5%growthafterFXand5%growthpriortotheimpactofFX.Asisnormalduringthispartofthelaunchcycle,ourincreasingmixofnextgensalesisdrivingthisgrowth.

Wearealsoinagoodinventoryposition,asourpreownedinventorydollarsareup6%overthesameperiodlastyear,drivenentirelybynextgenhardwareandsoftwaregrowth.Sowearewellpoisedtoachievemid-singledigitglobalpreownedgrowthforthefullyear.

Lookingatdigital,weagaindrovedouble-digitgrowthinnon-GAAPdigitalreceipts,whichincreased17.5%beforeFXand11.1%afterFX.Thisgrowthwasdrivenmainlybytheincreaseindownloadablecontentthatwassoldwithnewgamelaunches.Kongregatewilllaunchsevennewmobilegamesthisquarterandisontracktogrowmobilegamingrevenuesbyapproximately50%forthefullyear.

ItisimportanttonotethatduringtherecentreleaseofEA'sMadden16,weworkedwithourpartnerstoofferafreephysicalgamewiththepurchaseofeitheraPS4orXboxOneanddidnotcarrytheXboxOnedigitalbundle.Weexpectthatifagameisprovidedasapromotionaliteminahardwarebundle,GameStopwillseemoreofthesephysicaloffersthandigitalpack-insonupcomingthird-partyreleases.

InourTechBrandssegment,wecontinuetoextendoursalesleadershipofAT&TandApple'sbrands




inahighservicemanner,asourTechnologyBrandsdivisionisexperiencingexplosivegrowth.Wecontinuetoexecuteourstrategyofrollingupsmallerdealerstoimproveproductivityandleveragingourrealestateexpertiseinaddingnewlocations.

OurTechnologyBrandsdivisionhashadaveryproductivesummer,openingoracquiring182storessincetheendofQ1.OurstorecountasoftheendofQ2standsat731stores.Thisrepresentsa129%increaseinstorecountversustheendofQ22014.

Whilewestillplanonaddingbetween450to550TechnologyBrandsstoresthisyear,thebulkofourinvestmentspendingisbehindusandweanticipateseeingstronggrowthinthebackhalfoftheyear,culminatinginourTechnologyBrandsprofitsgrowingbetween40%and50%forthefullyearwithoutinfrastructureinvestmentcostsand10%to20%aftersuchinvestmentcosts.Thisalsosetsusupforstronggrowthin2016andbeyond.

OurSpringMobiledivisionisnownotonlythelargestandfastestgrowingAT&Tdealer,buttheycontinuetobethemostproductivedealer,aswell.JasonEllis,ourSeniorVicePresidentofTechnologyBrands,andhisteamhavedoneagreatjobofgrowingtheirbusinesswhilemaintainingahighservicestandard.WearealsothelargestandfastestgrowingAppleauthorizedresellerandatopfiveCricketdealer.

InearlyAugust,wealsobegansellingDirecTVinallofourSpringMobilestores,sowearenowofferingafulllineofAT&Tproductsandservicesinallofthesestores.Weareconfidentinourspecialtyretailexpertiseacrossallofourbrandsandoptimisticaboutcontinuedgrowthinthebackhalfoftheyearandin2016.

Finally,weleavethisweekendforourannualstoremanagersconferenceinLasVegas,whichwillboastapproximately6,000leadersfromallofourcompaniesandfromaroundtheworld.Wewillhavetopleadersfromallofourpartnerstalkingdirectlywithourfieldleadersabouttheirnewestinnovationsandtheirplansforgrowth.

Themanagerswillalsogethands-onexperienceonthelatestinnovations,mostofwhichhaveneverbeenseenbythepublic.Thisinvestmentensuresthatwewillhavetheknowledgeablesalesteaminourindustriesandallowsustocontinuetoprovidebetterservicethanourcompetition.

Withthat,I'llturnitovertoMikeMauler.

MikeMauler (President-International):

Thanks,Tony.Goodafternoon,everyone.

GameStop'sinternationalbusinesseshadastrongsecondquarter,exceedingexpectationswithrecordmarketshareandasignificantimprovementinoperatingearningsoverQ22014,ledbyourAustralianbusinesswitha10.2%samestoresalesincrease.

Drivingourincreaseininternationalearningswasdigitalreceiptgrowthof20%excludingFX,30%e-commercegrowthexcludingFX,drivenbyexpandingwebandstoresales,andthecontinuedexpansionoflicensedmerchandiseandcollectibles,orwhatourcustomersliketocallloot.Inthesecondquarter,lootwasourfastestgrowingsalescategory,withglobalsalesgrowingbymorethan200%versusprioryear,increasingcustomerbasketsizeandexpandingourgrossmarginrates.

ThisrapidgrowthwasdrivenbyourcontinuedexpansionofthecategoryinGameStopstores,improvedmerchandisingandmarketingexpertiseinthecategory,developingexclusiveproducts,leveragingrecentfanevents,suchComic-con,andexcitingnewproductIPsuchasMinions,InsideOut,TheAvengersAgeofUltron,andBatmanArkhamKnight.




Asmentionedonthelastearningscall,assaleshavecontinuedtoclimbonthesenewproducts,weareincreasingthespacedevotedtothecategoryinallmarkets.Oursecondwaveofin-storeexpansionwascompletedinthesecondquarter,generatingstrongincreasesinlootsales,aswellasexpandingourcustomerbaseanddrivingincreasedtrafficinourstores.

Finally,duetothesuccessofournewstand-aloneretailconceptdedicatedtoloot,wehavecontinuedtoexpandtheZ ingpopculturepilotinAustraliaandothermarkets.Weendedthesecondquarterwith14storesinAustraliaandonestoreinDublin.

Wewillcontinuetoexpandthisnewconceptinthesecondhalfof2015inothermarkets,includingtheUnitedStates,wherewe'llbeopeningourfirstlocationthisfallunderthebrandnameofThinkGeek,leveragingthepowerfulbrandofourrecentacquisitionofGeeknet.MikeHoganwillprovidemoredetailsonthisnewbusiness.

Theexpansionofthiscategorycontinuestobemetwithveryenthusiasticdemandfromourstoreassociatesandcustomers.Andweexpectcontinuedstrongsalesgrowthinthesecondhalfof2015,drivenbymanyoutstandingentertainmentlaunches,suchasFallout4,HungerGamesMockingjay,andDisney'supcomingblockbusterStarWarsEpisode7,TheForceAwakens,whereweareseeingverystrongpreordersonourexclusivelootofferings.Fortheyear,wearetargetingsalesof$200millionto$250million,notincludingThinkGeek.

Weareexcitedbythisopportunitytodrivecontinuedsamestoresalesandmargingrowthandincreasingrelevancewithourcustomers.Andweexpectthiscategorytogrowtoanover$500millionbusinessgloballyoverthenextthreeyears.AndnowIwillturnitovertoMikeHogan.

MikeHogan (EVP-StrategicBusiness):

Thanks,Mike,andgoodafternoon,everyone.PaulaskedmetocommentbrieflyonourrecentacquisitionofThinkGeek,ourprogresstodateandourplans.

Asdiscussedpreviously,GameStopinitiatedarobustbusinessdevelopmentprocessanumberofyearsagotofacilitateourdiversificationefforts.WeareconstantlyexploringnewopportunitiesthatcanapplycoreGameStopcapabilitiestodrivefuturegrowthandvalue.Geeknet,orThinkGeek,isagreatexample.Weareexpandingintoagrowing$20billionworldwidecategorywherewecanleverageourcorestrengthstodrivenon-gamingrevenue,growthandprofitability.

ThinkGeekprovidesasignificantexpansionofourglobalmultichannelplatform.Wewillutilizetheirproductdevelopmentandlicensingexpertisetobroadenourcollectiblesproductofferinganddeepenourexistingcustomerrelationships,whileaddingnewones.ItisworthnotingthatGameStop'sglobalmultichannelbusinessposted28%growthforthesecondquarter.MultichannelisakeygrowthdriverandweexpectThinkGeektobeabigpartofcontinuingthatgrowth.

Althoughthetransactionclosedameresixweeksago,I'mhappytoreporttheintegrationisofftoagreatstart.Wecontinuetoseegreatvalueinthisacquisition.

IwanttobeginbysharingafewkeyfactsregardingtheGameStopandThinkGeekcustomerbase,whereweseesignificantopportunity.GameStopcustomersareagreatfitforcollectibles.Inarecentsurvey,67%ofGameStopcustomersindicatedtheyplantopurchasecollectiblesinthenext12months,whichisahugeopportunityforustotapinto.

OurPowerUpbasealignswellwiththecategory.45%ofPowerUpmembershavepurchasedcollectiblesinthepastsixmonths,ascomparedtoonly22%forallUSconsumers,andweseeupsideforthesecurrentbuyers.WhilePowerUpmembersarespendingtwiceasmuchoncollectiblesastheaveragecategory




buyer,ThinkGeekcustomersactuallyspendfourtimestheaverage.WeseesignificantupsideforPowerUpmemberspendingandforthecategoryoverall.

ThinkGeekisapowerfulbrand.46%ofPowerUpmembersarealreadyfamiliarwiththebrand,doubletheawarenessforallconsumers.Andfinally,consumersareextremelysatisfiedwithThinkGeek,givingthebrandaveryimpressive68%NetPromoterScore.

Nowafewthoughtsonsynergyandthegrowthopportunity.Onthecostside,wearealreadyseeingsupplychainandpurchasingsynergies,someofwhichwillpositivelyimpactthebusinessinthecurrentfiscalyear.Geeknetpostedan$8millionlossinFY14.Weexpectthebusinesstoalreadybeprofitableforthebackhalfofthiscurrentyear.

Thereareanumberofspecificgrowthopportunitiesweareveryexcitedabout.Webtraffic.WerecentlybeganhighlightingafewThinkGeekproductsonGameStop.comtorefertraffic.GameStopisalreadydrivinggreaterthan10%oftotalThinkGeektraffic.

Profitablecustomers.GameStopprovidesahighvaluecustomerforThinkGeek,similartowhatwehavedonesuccessfullyforKongregatewithmobilegamepurchasers.AswithKongregate,weexpecttrafficfromGameStoptoconvertwellabovetheaverage.

Webinstore.WehaveaddedanumberoftopsellingThinkGeekproductstoourGameStopwebinstoreprogram.ThisallowscustomersinGameStopstorestoorderproductsforhomedelivery.Wejustopenedthisuplastweekandwehavealreadysoldoutofseveralkeyproducts.

Profitablepromotions.GameStopandThinkGeekcollaboratedtoexecutea16thanniversarysalelastweek,whichresultedinThinkGeek'ssecondhighestgrossmargindaythisyear.

Pipeline.Weexpectsignificantgrowthinthebackhalfoftheyear.Weareexcitedaboutmanyexclusivenewproducts,includingafulllineupinsupportofthenewStarWarsmovie.

Internationalexpansion.WearealsoexcitedaboutthepotentialforofferingThinkGeekproductsinourEuropeanstores.Wehavealreadybegunshippingalimitedselectionforthefall.ThinkGeekproductsarecurrentlyavailableinourAustralianstores,aswell.

AsMikeMaulermentioned,wewillhaveseveralThinkGeekstoresopeningintheUSthisfallandwewillfeatureThinkGeekheavilyatourmanagersshowinLasVegasnextweek.Weareverypleasedwiththeprogresstodateandweanticipatemeetingorbeatingourinitialsynergyandgrowthexpectations.

Andfinally,forthoseofyoumakingupyourholidaygiftslistsearly,IwantedtohighlightafewuniqueproductsthatThinkGeekwillbefeaturingoverthenextfewmonths.Don'tmissoutontheStarWarsR2D2bentobox.TheDeathStarwafflemakerissuretobeahit,ormaybeaTeslavacuumtubewristwatchortheeverpopularKnightRiderKitcarcharger.YoucanalllookforwardtoseeingoneoftheseinyourChristmasstocking.

IwillnowturnitbackovertoPaul.

PaulRaines (CEO):

Thankyou,Mike.WewillnowopenitupforQ&A.Operator,pleaseproceed.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)




We'lltakeourfirstquestionfromColinSebastianfromRobertBaird.

ColinSebastian (Analyst-RobertW.BairdandCompany,Inc.):

Great.Thanks.Goodafternoonandcongratulationsonaverynicequarter.

PaulRaines (CEO):

Thankyou,Colin.


Thanks.Paul,firstIwonderifyoucouldaddsomecolorontheplantoreconfigurethestores,reducethesizeofthevideogamecategoryandhowyou'llmanagethatchange,includingtiming.

Andthensecondly,lookingbackattheQ2numbers,clearlyyousawstrengthinthemobileandconsumerelectronicssegments.Videogameproductsdeclinedalittlebit.Iwonderifyou'reseeinganyimpacttherefromfullgamedownloads.

Andthenlastly,intermsoftheoutlookfortheremainderoftheyear,ifyoucouldmaybetalkaboutsomeofthetitleswhereyou'reperhapsseeingsomeparticularstrengthinpreorders,thatwouldbehelpful.Thankyou.

PaulRaines (CEO):

Thanks,Colin.Letmestartandhandlethefirst,andmaybeTonyandRob,youtwoguysthinkabouttwoandthree,onwhatyouthink.IthinkColin,thewayweseeit,thislootthing,we'vebeenresearchingit,MaulerandtheteaminAustraliahavebeenresearchingitforacoupleyears.Ithasn'tbeenasuddenevent.

Whatwesee,though,isthatthere'satremendousadjacencybetweenpopularcultureandvideogames.Andifyourememberbacktoourfranchisemarketingeffortsthatwedidafewyearsago,weknowthatwhentheconsumerisatalaunch,theywanttogeteverykindofitemtheycanrelatedtothatparticulartitle.Ifyou'reinlineforBatman,youwanttheBatmanT-shirt,thegame,everythingthatthereis.

Andofcourse,there'salwaysbeenalackofthatmerchandise.Sowebelievethattheloothasasignificantplaceinourstores.EvenifIwasheretoday--MikeBuskey'shere,ourstoreleader.Mike,Ithink,whatareyouat,20%overalllootspace,probablygrowing?

MikeBuskey(President-USStores):

Yes.Yes.

PaulRaines (CEO):

It'sgoingtobeabigbiggerpartofourbusiness.Webelieveit'sagoodinvestmentinspace,andcandidly,itgivesusgoodleveragewithpublisherswhohaven'thadthatkindofcompetitionbefore.SoIthinkthat'sagooduseofourspace.Andaslongasit'sproductive,Ithinkweshouldcontinuetodoso.Whataboutmobileconsumerfullgamedownloads.Whowantstotakethatone?

RobLloyd (CFO):

Colin,itsoundedlikeyousaidthevideogameproductsweredown.IwanttocorrectthatandsaythatbeforetheimpactofFX,hardwarewasup,softwarewasup,preownedwasup,accessorieswereupanddigitalwasup.Sowe'reverypleasedwithwhatwesawinthequarterinthecorevideogamebusiness.IthinkI'llturnitovertoTonyforanyspecificsonwhatwesawonthedigitalside.




T onyBartel(COO):

Sure.Andwecontinuetoattachataveryhighrate.Forinstance,inMaddenthatjustlaunched,wehada42%attachrateofdigitaltothattitle.Sowehaveaverystrongattachrate,andwecontinuetobe--

PaulRaines (CEO):

That'sveryhigh.

T onyBartel(COO):

Veryhigh.Andwecontinuetobegoodatlettingpeopleunderstandexactlywhattheycanbuyfromadigitalstandpoint.Rememberthatdigitalalwayssuffersfromtwothings,discoverabilityandaffordability.Andwedoagreatjobonbothofthosefronts.

Intermsofthegamesthatwe'reveryexcitedabout,it'sreallythenew,someofthenewIP,oratleastIPthathasn'tbeenoutforalittlewhile.Halo5islaunching,asRobtalkedabout.It'sgoingtobestrongerinthefourthquarterthanitisinthethirdquarter,becauseitlaunchessolateinourthirdquarter.

CallofDutyBlackOps3,we'reexcitedtoseethethree-yeardevelopmentcycle,andsoveryexcitedaboutthatgamecomingout.Fallout4,whichisannounced,isalsoagamethatwe'relookingforwardto,andthenStarWarsBattleFront,whichisawholenewIP.Sowe'rereallyexcitedaboutthesenewtitlesandthat'swhyRob,Ithink,sharedhisenthusiasmaroundthefourthquartergrowth.


Thanks.Seeyounextweek.

T onyBartel(COO):

We'llseeyouthen.

PaulRaines (CEO):

Seeyouthere.

Operator :

We'llgonexttoBrianNagelwithOppenheimer.

BrianNagel(Analyst-OppenheimerandCo.):

Goodafternoon.Congratsonanicequarter.

PaulRaines (CEO):

Thanks,Brian.


Acouplequestions.Firstoff,maybesomewhatofafollow-uptothepriorquestion,butonsoftware,therewassomenoisethereaswelookatthatyear-on-yeargrowth,giventhecurrencyfluctuationsandthensomeofthecomparisonswithlastyear'slaunches.

Butaswestepbackfromthatandyoulookattheunderlyingtrendsthere,howwouldyoucharacterizetheunderlyingsoftwaresalestrend,particularlywithrespecttothenewgenerationsalesversuscurrent




andpriorgenerationsales?AndthenI'llhaveafollow-upquestion.

PaulRaines (CEO):

Tony,youwanttotakethatone?

T onyBartel(COO):

Sure.Giventhatthelaunchhasbeenincrediblystrong,weseethemasdefinitelyparticipatinginthat.Clearly,we'vetalkedaboutattachratesareabitlower.

Andwhenyoutakealookatourattachratesonthisincrediblelaunchcyclethatwehave,whenyoulookatourphysicalandourdigitalattachratestogether,we'reveryconsistentwiththepriorlaunch.Sowhenyouthinkaboutthefactthatwe'vetripledtheamountofunitsthatwesoldonthePS4andalmostdoubledtheXboxOne,youseethatwehaveaverystrong--wefeelverygoodaboutthegrowththatwe'reseeing.

PaulRaines (CEO):

Mike,anythingyouwanttosayoninternationalunitgrowthpre-FXversus--


Ithinkwhatwe'reseeingisprettystrongsoftwaregrowthonnewreleases,especiallynewIP.We'vetalkedaboutthatlittlebitof(Inaudible).Andsowhenyoulookatreservationsforthebigtitlesthisfall,we'recontinuingtoseethattrend,wheresomeofthenewIPthat'scomingontothenewgenshasreallygotalotofcustomerexcitementaroundit.


Ithoughtyou'dgivenusinthepasttheactualyear-on-yeargrowthinnewgenerationsoftwaretitles.Isthatsomething--andifyouhave,whatwasthatnumberhereinQ2?

T onyBartel(COO):

ThenumberinQ2was64%.ThisisUSnumbers.So64%forthePS4andXboxOne,anddown56%onthePS3andXbox360.Soclearly,theonethingthatisdifferentinthislaunchcycleversustheotheristhefactthatPS3andXbox360havefallenofffaster,andwe'vesaidthatmultipletimes.

Andsowhatwe'reseeingisveryrobustsalesofPS4andXboxOneoffsetbyaccelerateddeclineinPS3andXbox360,onthenewside.Nowthepreownedsideisobviouslyoutperformingthat,whichiswhyweactuallygrewfasterthannewthisyear,thisquarter.


Theotherquestionwithrespecttoguidance,andPaul,Iheardyourcommentsearly,andyou'vemadethosecommentsbefore,aboutwantingtoputnumbersouttherethatareachievable.Butyoubeatthe--EPSbeatthemid-pointofyourguidancehereby$0.08,andyou'reliftingyourrange,boththetopandbottomend,by$0.03,soit's$0.05thatgoesawaythere.IsthatsimplyGameStopwantingtobeconservativeorshouldwereadsomethingelseintothat?

PaulRaines (CEO):

Iwouldn'treadanythingelseintoit.I'llletRobanswerthemeatofthequestion.Here'sacouplethings.There's,what,75%oftheyearisleft?Alotcanhappenintherestoftheyear.Wedon'tknow.Andnumbertwo,youtoldus,investorstoldusinthesurveythatwe'vedonethatyouwantustosettargets




wecanachieve.Sowe'retryingtosetthosetargets.Rob,whatelsewouldyousayaboutit?

RobLloyd (CFO):

ThepointisIwasgoingtomakewasthatwe'reonlyaquarterofthewaythroughtheearningsfortheyear,andthereisalottobelearnedfromthetitlesastheycomeoutthisfall.Andsowe'realittlecautiousthere.

PaulRaines (CEO):

Ithinkifwhatyou'reworriedaboutis,istherealoomingdigitalscenariooutthere,Iwouldsaynotonethatweknowabout,that'sforsure.Butwe'rejusttryingtobecautiousandtryingtomanageexpectationsandserveourshareholders.


Thankyouandcongratsagain.

PaulRaines (CEO):

Thankyou.

Operator :

We'llgonexttoArvindBhatiafromSterneAgee.

PaulRaines (CEO):

Hello,Arvind.

Operator :

Let'sgotoMikeOlsonwithPiperJaffray.

PaulRaines (CEO):

Hello,Mike.

MikeOlson (Analyst-PiperJaffrayandCo.):

Hello,guys.Goodafternoon.Justhadacouplequestions.IfyoulookattheCollectibles,whichisobviouslydoingwell,growingfast,ifyoulookatthatinisolation,isthegrossmarginforCollectibleshigherthanyourbroadervideogamebusiness,includingsoftwareandnewhardware,preowned?Inotherwords,ifCollectiblescontinuestogrow,isthatafavorablelong-termtrendforgrossmarginornot?

Andthenmyotherquestionwas,lastquarteryoumentionedthatpreownedgrowthwouldacceleratethroughouttheyearandendupoutpacingnewsoftwaregrowthbytheendoftheyear.Itsoundslikethat'sstillthecase,butjustwantedtocheckbackonthat.

RobLloyd (CFO):

Mike,thisisRob.TheCollectiblescategoryismarginaccretiveforusontheoverallbusiness.Sowe'reverypleasedwiththat,andexpandingthatobviouslywillbebeneficialtomarginaswegoforward.Intermsofthepreownedgrowthguidancerelativetonew,Ithinkwesaidbothwouldbemid-singledigitsgrowthfortheyear.

MikeOlson (Analyst-PiperJaffrayandCo.):




Okay.Thanksverymuch.

PaulRaines (CEO):

Thankyou,Mike.

Operator :

Andnowwe'llgotoArvindBhatiafromSterneAgee.

ArvindBhatia(Analyst-Sterne,AgeeandLeach,Inc.):

Sorryaboutthat,guys.Congratulationsfrommyside,aswell.

PaulRaines (CEO):

Thankyou,Arvind.


Okay.SoIguesseverybody'stryingtofigureoutthebackhalf,lookslikeyouguysaretalkingaboutacceleration.You'vegotagreatlineup.Justwonderingifyouwouldmaybequantifyabitmoreonthenewsoftwareside.IthinkIrememberpreviouslyyouguyshavetalkedaboutmid-singledigitgrowthinnewsoftware,aswell.Ithinkyouconfirmedused.ButIjustwanttobesureyou'restillcomfortablewiththemid-singledigitgrowthnumber,ex-FX,orcourse.That'smyfirstquestion.

Andthenontheusedcategory,Iheardyoutalkabouttheextrarefurbishmentcostsrelatedtothehardwaresideandalsohowthenextgencategoryhasslightlylowermargins.Andsojustyourbackhalfguidanceongrossmargins,Igotthat,buthowshouldwethinkaboutusedmargins,sayfor2016,ongoforwardbasis?

PaulRaines (CEO):

Rob,youwanttotakethesoftwarequestion?

RobLloyd (CFO):

Sure.Withrespecttonewsoftwarefortheyear,we'resayingmid-singledigits.IwillclarifythatwithcontinuedFXmovement,we'resayingmid-singledigitsgrowthforsoftware,newsoftware,andpreowned,beforeconsideringcurrency.

Ontherefurbcosts,lookingforward,andthenextgenversuspriorgen,IthinkthepointthatIwouldmakethereiswe'renotyetreadytogiveguidancefor2016.Butwhatyoucandirectionallyexpectaswemovethroughacycleisthetitleswithinthenextgenage,andthatgivesusgreaterflexibilitywithrespecttothebuyprice,aswellastheretailprices.


Okay.AndthenImissedthepart,Ithink,Tony,youmentionedontheMaddenbundle,somethingaboutthephysicalbundlewasthere,butnotthedigitalbundle.Canyouclarifythatagain,please?

T onyBartel(COO):

Sure.Weworkedwithourpartners--clearlywhatis--whattookplacelastyearweretherewerealotofhardwarepromotionaloffersthatweregivenwheretherewasapackedindigitalgameanditwaspackedinforfree.




Ithinkwearticulatedinthefirstquarterthatwehavemadeitclearwithourpublishingpartnersthatourpreferenceisthatwesell--obviously,GameStop'spreferenceis--wesellthingsatfullpriceandprovidegreatvaluethroughourtradeprogramandthatwehavephysicaldiscs.

Andsowe'veworkedwithourpartnersthatthere'sachannel-wideofferthathad,again,adigitalpack-ininitofMadden.AndweworkedwithbothSony,Microsoft,andEA,withallthreeofthem,andweofferedafreephysicaldiscwhenyouboughteitheraPS4oranXboxOne.Sothat'sclarificationthat'sbakedin.AndthenIsaidthatifinfactthesedocontinue,theplatformholdersdocontinuetoputinfreegamesaspromotionalitems,weanticipatethatatGameStopyouwillseemorephysicalbundlesfromthirdpartiesasopposedtodigitalbundles.

PaulRaines (CEO):

Arvind,thisdigital--ofcourse,we'vehadlotsofconversationsonthesedigitalbundlesandsoforth,right,Tony?ButIthinkwhat'sinterestingtousisthatconsumershaveaprettystrongpreferenceinthis.

AndIthinkwe'veseenthisplayoutinavarietyofwaysoverthepastfewyears.Consumerspreferthosephysicalbundles,becausetheyknowthatthatdischasvalueinthetrade-inprogramatGameStop.Sowechoosenottoparticipateinthedigitalbundles,andTonycreatesthesepromotionswithBobPuzonthatareveryeffective.

T onyBartel(COO):

Anditdidnothurtourmarketshare.Weactuallyincreasedmarketshareonthelaunch.


Onelastone.Themarginsonmobile,consumerelectronicsisupsignificantly,Ithink900basispoints.Didyoutalkaboutwhatwasthatthisquarter?

PaulRaines (CEO):

Idon'tthinkwedid,didwe,Rob?

RobLloyd (CFO):

ThedriverforthatiswithintheTechBrandsbusinesses.AswecontinuetogrowtheAT&Tbrandedstorecountandthosebusinessesmature,we'recontinuingtoseerichmarginsintherethatstemfromtheconsumer'sshifttotheNextprogramfromAT&T.Sowe'reverypleasedwiththemarginratesandtheimpactthatthat'shavingonthemobilecategory,aswellasthebusinessasawhole.


Great.Thankyou,guys,andgoodluckfortherestoftheyear.

PaulRaines (CEO):

Thankyou,Arvind.Arewegoingtoseeyouthisweekend,Arvind,orno?


Absolutely,yes.

PaulRaines (CEO):

Good,good.Seeyouthere.




Operator :

We'llgotoCurtisNaglewithBankofAmerica.

CurtisNagle (Analyst-BofAMerrillLynch):

Great.Thanksverymuchfortakingthecallandgoodafternoon.Iguessthefirstquestionintermsoflookingatthesoftwareguidancefor3Q,areyouguysfactoringMetalGearSolidinanywayinthere,justgiventhatit'sgettingprettyphenomenalreviewsandit'saprettyestablishedfranchise,I'dimagineit'sgoingtobeaprettygoodgameforyou.Andthenjustaquickfollow-up.

RobLloyd (CFO):

Yes,wearefactoringthatinandexcitedaboutit.

T onyBartel(COO):

Itshouldbenotedalso,Rainbow6didmoveoutofthequarter,aswell.Soweareexcitedaboutboththosetitles,andsoyouhadthatasatradeoff.


Andthenjustaquickfollow-up.Justgoingbacktoused,sounderstandthatwasdrivenbynextgen.Butcouldanyofitalsohavebeendrivenbythefactthatthetitlelineupforthisquarterwasalittlelightandmaybeyouhadsomepeople,Iguessvalue-basedgamers,shiftingintousedasaconsequence?

PaulRaines (CEO):

IthinkasRobsharedalotofthat,Ithinkwhereyousawthat,Curtis,wasinourstronghardwareperformanceandaccessoryperformance.That'sexactlywhatyousawisyousawmorepeopleskewingourpreownedbusinesstowardthehardwareside.AndasRobtalkedabout,wehaverefurbcostswhicharetypicallythesameyear-over-yearataslightlylowerretail.


Okay.Thanksverymuch.Andgoodluckfortherestoftheyear.

PaulRaines (CEO):

Thankyou,Curtis.

Operator :

We'llgotoDavidMageewithSunTrust.

DavidMagee (Analyst-SunTrustRobinsonHumphrey):

Hello,guys.Goodafternoon.

PaulRaines (CEO):

Hello,David.


Justacouplequestions.Oneis,giventhestrengthinthehardwarecyclethusfar,what'syourcurrentthinkingwithregardtothedurationofthecycle,howitplaysoutthenextcoupleyears,andalsoany




coloraboutthetieratios,aswell,wouldbehelpful.Thankyou.

PaulRaines (CEO):

That'sagreatquestion.Firstquestion,hardwarestrengthandhowlong--it'saninterestingquestion,right,becauseweobviouslyacceleratedandbroughtforwardabunchofdemand.Thequestionhe'sgotishowlongwillthislast.

T onyBartel(COO):

Well,weseeitcontinuing.Imean,it'scontinuedtogrowinstrength.AndIsharedearlierabouttieratio,thatwhenyoucombineourphysicaltieratioandourdigitaltieratiothatwe'refairlycomparabletothepriorlaunch.

Andwehavetremendousstrength,aswetalkedabout.What'shappeningisnowwe'resellingthe1terabytehardware,whichiscreatinganadditionaldemand.Soweseecontinueddemand.Mike,youmightwanttosharesomeofthePowerUprewardnumbersoncontinueddemand.


Iwouldsaynumberone,we'restillprettyearlyinthecycle.Thelastoneisn'tgonein,what,sevenyearsinmostcases,andwe'rebarelytwoyearsintoit.Ithinkwe'reseeinganaccelerationonthesoftwaresideintermsoftheinstalledbaseisgrowing.You'veseenmoreandmorenewIPcomingout.

AndthenonthePowerUpside,oneofthethingswecontinuetotrackisPowerUpmembers'interestinpurchasingnewhardware.Andthosenumbersarestillverystrongandsimilartowhatwe'vereportedinthepast.Soallofourindicatorsarepositivethatconsumersarestillveryexcitedabouttheseproducts.Andthere'satonofconsumersouttherewhostillwantthesenewconsoleswhohaven'tboughtthemorhaven'tbeenabletoaffordthemyet.

T onyBartel(COO):

Andrememberthatsomeofthestrongestmultiplayergamesareaheadofus,soBlackOps3,whenyoulookatBattleFrontStarWars,thoseareincrediblemulti-playergames.Andthatisgoingtodriveawhole[guilds]togoandmigratetoanewplatform.Weseethatreallyhasnotstartedtotakeplaceinearnestyet,andwethinkthisfall,thatwillstarttotakeplaceinearnest.


Thankyou.Andthensecondly,canyoutalkaboutthebreakdowninthepreownedbusinessbetweenwhatweconsidertraditionalpreownedproductversusthenewervalueproduct?

T onyBartel(COO):

Wehad$41millionworthofvalueproductthisquarter,whichwasanincreaseoverlastyearthatwehad.Soitcontinuedtodrive.That'swasourpurchaseswereforthequarter.Andsowecontinuetoincreasevalueofferings,aswell.Sothatcontributedsimilargrowth,aswell.

PaulRaines (CEO):

Ihaven'tchecked--thegoal,David,ofthevalue,ifyouremember,thevalueintroduction,IthinkitwasintheMarchcalllastyear,thegoalofthevalueproductwastoincreaseourmarketshareintitlesbelow$20.That'sourtraditionalweaknessonthenewsoftwareside.Ithinkwedidthatinthefirstquarter.

Secondquarter,I'mashamedtosayIhaven'tchecked.ButIsuspectweprobablyincreasedthat.Ithas




notbeenasfastaswehadhoped,andthat'spartlybecausewe'rejuststrugglingtogettosomeofthosepublishers.Ontheotherhand,there'salotofactivityinthatspacebyusintentonpurchasingmorevalueproducts.Ithinkyou'llseemoreonthat.


Okay.Great.Thanks,Paul,andgoodluck.

PaulRaines (CEO):

Thankyou.

Operator :

Wehavetimefortwomorequestions.We'llgonexttoSethSigmanfromCreditSuisse.

SethSigman (Analyst-CreditSuisse):

Great.Thanksverymuch.Nicequarter,guys.

PaulRaines (CEO):

Thankyou,Seth.


Acouplequickfollow-upquestionshere.First,ontheTechBrandbusiness,justwonderingifyoucouldtalkabouthowthosestoresarecomping,thosethathavebeenopenfor12monthsorhoweveryoudiscloseit?Andthenalsotheoperatingearningsperformanceofthatbusinessthisquarter.Ithinkyougaveusrevenue,butI'mnotsureifIheardtheactualoperatingearnings.

PaulRaines (CEO):

Guys,whatcanwediscloseonthat?Wehavetobecarefulhere.

RobLloyd (CFO):

Intermsoftherevenueperformanceonaperstorebasis,Seth,itisnotincludedinourcompnumber.Andthereasonforthatisbecausehistorically,thewirelessretailbusinessissubjecttoalotofvolatilitythat'sdrivenbychangesinthecommissionandcompensationstructuresthatthecarriersputin.Wedidalittlebitofresearch,aswe'vesaidbefore,intermsofwhatcompanieswerepublicinthisspace.Ithinktherearen'tanyleft.They'vebeenacquired.

Andthepracticeistonotdisclosethosecomps,rathertotalkintermsof,forus,thegrowthinprofitabilityandgrowthinthestorebase,Ithink,isasignificantthing.Notsurewedisclosedtheoperatingearningsnumberforthequarter,andIdon'thavethatimmediatelyinfrontofme.Sowe'llhavetogetbacktoyouonthatone.

PaulRaines (CEO):

Ithinkthethingyou'vegottounderstandiswe'vegotpartnerstherewhohaverulesaboutwhattheywanttodisclose.Themobilesegment,though,Ithinkit'sagoodproxyfor--ofcourse,wedon'thaveoperatingearnings(Inaudible).

RobLloyd (CFO):

Thatwillbeinour10-Q,Seth.Iapologizefornothavingthat.





Fairenough.Clearly,thatpartofthebusinessisininvestmentmode.Wesawthatlastquarterandagainthisquarter.Howdoyouthinkaboutthenormalizedoperatingmarginsforthatbusinessandwhenthatwillactuallystarttoinflectpositivelyfollowingthisinvestmentperiod?

RobLloyd (CFO):

Well,asTonyandIbothmentionedinslightlydifferentwaysinourscripts,weexpectthethirdquarterprofittobecomparabletolastyear'soperatingearningsforTechBrands.Wewillcontinue,aswe'reopening90to100storesthisquarter,toincursomeofthoseinfrastructurecoststoprepareforthoseopenings.Butinthefourthquarter,wethinkwe'regoingtobelargelypastthatandweexpectthattheprofitwillgrowsignificantlyfromlastyear.IthinkTonysaidex-thoseinfrastructureinvestments,wewouldexpecttheTechBrandsprofitfortheyeartobe40%to50%upfromlastyear.

T onyBartel(COO):

Intermsofoperatingprofitmargins,Rob,youmaywanttogivehimthelong-termforecastthatwe'veprovidedinvestorsbeforeforTechBrands.

RobLloyd (CFO):

Yes,thatis--Idon'thavethatslideinfrontofme,butifIremembercorrectly,itwasapproximately$170millioninoperatingearningsagainstarevenuebaseofabout$1.5billion.Soinexcessof10%operatingmargininthatspace.

PaulRaines (CEO):

Whichwouldbeaccretivetous.

RobLloyd (CFO):

Obviously,yes.

PaulRaines (CEO):

Ontraditionaloperatingmargins.


Okay.Gotit.Andthenjustafollow-upquestionontheusedgamebusiness.Ithinkearlieryoudisclosedabreakdownbetweencurrentandlastgenperformanceforthenewsoftwarebusiness.Lastquarter,youtalkedaboutthatforthepreownedbusiness.Justwonderingifyoucouldgiveussomecoloronthatthisquarter.

PaulRaines (CEO):

Sure.There'saslideonthisone,bytheway,Seth.Didyoutakeitdown?


Tookdowntheslide.

T onyBartel(COO):

64%newsoftwaregrowthonPS4andXboxOne,117%preownedsoftwaregrowth.Sosignificantly




increasedthere.AndthenonXbox360andPS3,asIsharedearlier,newsoftwarewasdown56%,preownedsoftwarewasonlydown25%.Sowecontinuetoseeoutpacingandalessdeclineinthepreownedsectionthanwedointhenew.


Okay.Andjustonefollow-up,ifImay,onthepreownedbusiness.GameStopputoutasurveythisquarterinapressreleasediscussinghowconsumerswereleavingsomemoneyonthetablebynottradingmoregamesin.What'stheCompanydoingtostimulatethattrade?Andisincreasingthetrade-invaluesoneoptiontosweetenthedealanddrivethattrade?

PaulRaines (CEO):

Sureitis.IthinkTonyhadinhisscript,ourinventorylevelintradeshasgoneup.

T onyBartel(COO):

Ourinventorylevel'sverystrong,up6%,andwe'vedonethatwithouthavingtopaymoreforthegames.Sothat'sbeen--obviously,that'sbeenagoodopportunityforus.Itisaconstantawarenessgame.

Andthat'swherePowerUprewardsishelpfulandsoforth.Andpartofthesurvey,tobecandid,wastoallowpeopletounderstandthatifyougointoourstorestoday,youwillfindthatwe'vejustkickedoffanothertrademore,savemorecampaign,whereeachstorewillhavethetoptraderoftheweeklisted,wheretherewillbetoptradevalueslisted.Ithinkthisisablockingandtacklingissueinourstores,wherewewillconstantlybeworkingtoeducatethecustomeronthegreattradevaluesthatwehave.

PaulRaines (CEO):

Theissueis,thedebateherearoundhere,ifyouwereinourofficeseveryday,theconstantdebateistradevaluesversusnewlaunchesthatdrivetradesversusmarketing,kindofthebigthree.Andwhatwe'vefound--andwecangetprovenwrong--whatwe'vefoundisbiglaunchesandin-storeexecutiondrivestradesmorethantradevalue.Mike?


Iwouldjustaddtothat,fromaconsumerstandpoint,it'svalueandawareness.Wemadeahugesteplastyearwithoursimplifiedtradepricing.Whatwefoundisthatconsumersrespondedextremelywelltothat.Andwithalessermixofpromotionandagreatermixofeverydayvalue,peoplereallyrespondedwelltothat.

Andthentheotherthingwefindisthattradeawarenessisstillalwaysanopportunity.Andeverytimewehaveanopportunity,wewanttocommunicatethat,andeverytimewecommunicatethat,webringnewpeoplein.Andalltheevidencewehavesuggeststhatwhenwemakepeopleawareofthetradevaluesandwhattheycanget,theyrespondverypositivelytoit.Sowe'llcontinuetoworkonawareness.

PaulRaines (CEO):

Yes.


Okay.Thankyouforallthecolor.Appreciateit.

Operator :

We'llgonexttoScottTilghmanfromB.Riley.




Scott T ilghman (Analyst-B.RileyandCompany):

Thanks.Goodafternoon.

PaulRaines (CEO):

Hello,Scott.


Ijusthaveafew,Ihope,relativelyquickquestions.FirstoffontheCollectiblesside,asyougearupinthatcategoryandhavealittlebitofhistorywithit,doyouexpectittoultimatelybelumpierthannewcontentsalesordoyouthinkyouhaveanopportunitytoprovidesomesmoothingoftherevenuewithmerchandisingwithinthecategory?


ThisisMikeMauler.Ithinkthatwhatwe'llsee,becauseit'sabroaderrangeofIP,wewillseeittobesmoother.Soyou'reconsistentlyhavingnewmovies,newtelevisionshowsandvideogamelaunchesthroughouttheyear.Andsoforexample,themovielaunchesinthesummer,there'sfrequentlynotalotofnewreleasesonvideogames,butthere'salotoflootyoucansellwiththatnewIP.Soitseemslikeitwillbemoreconsistentlystrong.

PaulRaines (CEO):

Ithinkthefactthatyou'reseeingusoutperforminthesecondquarterindicateshowthelootisreallycontributingtobalancingourdemandflow.AndasMikesays,there'salotofIPthat'snotvideogames.Soitshould.


AndIassumethatyouwillbefollowingupwithmarketingsupportbehindthat,asthecollectiongrows.


Absolutely.

PaulRaines (CEO):

Wehopeso.I'mlookingatHogan.He'sshakinghishead.


I'mnodding.

PaulRaines (CEO):

Hedoesn'thaveabigcheckbook,buthe'snodding.


Second,oninternational,Imissedacoupleofcomments.IknowAustraliawasupover10%onacomparablebasis.AndifIheardthatcorrectly,thatmeanstheothermarkets,EuropeandCanada,weredown.Iwaswonderingifyoucouldcompareandcontrastalittlebitwhatyou'reseeingonthe--acrosstheinternationalgeographies.

PaulRaines (CEO):




Wanttotakethat,Mike?


Sure,justasecond.

RobLloyd (CFO):

I'llgoaheadandgivethecomps.TheCanadiancompwas8.5%andweweredownincompinEurope3.8%.Asfarascolor,I'llturnitovertoMike.


ThecolorwouldbeourtwostrongestmarketshavebeenAustraliaandCanada.InEuropelastyear,wehadverygoodhardwareallocationsandEuropereallyexceededtherestoftheinternationalmarketsintermsofhardwaresales.Thisyearwe'rebacktoournormal--closertoournormalmarketsizeinhardware,andsothatwasalittlebitofheadwindforthem.

PaulRaines (CEO):

Onethingtoadd,Mike,maybemightbethattheconceptoflootappearstobemoreofanAnglo,maybeNorthernEuropeanconcept.SouthernEurope,wehaven'tseenthekindofresultswe'veseenmaybeinsomeoftheNorthernEuropeanmarkets.


That'strue.ThegrowthoflootinAustralia,Canada,theUnitedStates,NorthernEurope,theNordicsandIrelandhavebeenconsistentlyaheadofwhatwe'veseeninSouthernEurope.Sothat'ssomethingwecontinuetohavetoexplore.

PaulRaines (CEO):

Wemaynothavetherightassortmentyet.That'sonepossibility.Butwecertainlyhaveworktodo.


That'shelpful.ThelastquestionIhave,justintermsofthecompetitiveenvironment,you'vehadsomesmallerregionalplayerspulloutofthecategory.ItseemslikesomeofthebigboxesevenhavediminishedtheimportanceofCEasaleadingorasaleadingcategoryoratrafficdriver.ButI'mcuriouswhatyourtakeis,one,thecompetitiveenvironment,bothdomesticallyandabroad.

PaulRaines (CEO):

Forvideogamesorlootor--?


Forthebroaderproductmix.

PaulRaines (CEO):

I'lllettheseguysaddtheircomments.We'vebeenwatchingalloftheseplayersaroundtheworldforalongtime,andIcan'tsayI'veseenmuchdiminishingofanythingthey'redoing.They'reallrunningtheirplay.BestBuydidhaveagoodnumberyesterday,itappears.Ihaven'tseenthevideogamecomp.Tony?

T onyBartel(COO):




Ihavenot.

PaulRaines (CEO):

I'dbesurprisediftheyreallygainedatonofshare.Butwedon'tseeahugeamountofactivity.Ourcompetitorbaseissobroadnow,too.Usedtobewe'dgetonacallandwe'dtalkaboutWal-MartandBestBuy,MediaMartand[Satur]andJBHi-Fi,Amazon.Todaywetalkaboutlotsandlotsofotherpeople,digitalplayers,publisherswhoaretryingtogodirectversusthroughretail.AndsoIhavenotseenatonofactivityherethat'snew,otherthantheplayers.


Idon'tseealotofchangeinactivity.Ithinkthatthereisa--wecontinuetogainmarketshare.Andsolikewesayquarterinandquarterout,we'resellingover50%ofthegames.Wehavemadeaverydistinctefforttotryandwinthisconsolelaunch.We'vebeenveryclearaboutthatforthelasttwoyears,andIthinkwe'vebeeneffectiveinthat.

SoI'msurethattherearepeopleatsomeofthoseotherlocationsthatPaulmentionedthatareseeingasignificantreduction.Thewholecategoryisnot--hasnottripledthesaleofPS3s,andthewholecategoryhasnotnearlydoubledXboxOne.Soclearly,we'vetakenalotofsharefromalotofthoseotherpeople.Idon'tthinkthatthey'retryingless.Ijustthinkwe'rerunningourplayanditseemstobeworking.

PaulRaines (CEO):

Guys,weshouldtalkabout,onthemobilelootside,there'sawholenewcastofcharacters.WeareacommittedAT&Tpartner,soweareinpartnershipwiththem.WecompetedirectlywithVerizon,SprintandT-Mobile.Andwesortofliveanddiebythosefortunes.Onthelootside,there'sprobablyalotofplayersonthelootside.Don'thavesharedataonloot,unfortunately.ButIsuspectwe'regrowingvery,veryfastonthesharedataonloot.


Paul,toyourpoint,Iassumeinstallmentbillingisactuallyabenefittoyou,giventhatsomeoftheothersouttherecompetingcan'tofferit.

PaulRaines (CEO):

Yes,yes,Ithinkthat'saccurate.Ithinkthat'saccurate.Andthere'sjustalotgoingonunderoneroof.Don'tforget,wealsoofferCricketin2,000storesorso.So2,000GameStopstores,wewillsellyouaCricketprepaidphoneandacontract.

Sowhenyoucandoprepaidphonesinastore,youcanprobablydosomeotherprepaidthings.Sowe'reexploringthatveryaggressively.There'sjustalot--asIsaidinmynotes,there'sjustalotgoingonhere,andwedon'thavetheluxuryofslowingdown.

Maybetodayitfeelslessscary,buttherewasatimeherewherewewerecomingineveryday,figuringouthowwe'regoingtogetthroughthedayandsoforth.Today,fortunately,Ithinkwe'repastthat.Butwecan'tslowdown,so--


Okay.Well,thankyoufortakingthequestions.

T onyBartel(COO):




Thankyou.

PaulRaines (CEO):

Allright.Well,thankyouforyoursupportofGameStopandwe'lllookforwardtotalkingtoeveryone.Ifyou'recomingtoourshownextweek,we'llseeyouthere;andifnot,we'lltalktoyouduringthequarter.Thankyou.

Operator :

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Gamestop (GME) Earnings Report: Q2 2015 Conference Call ... · Company Name: GameStop Corp Company Ticker: GME Sector: Services Industry: Retail Event Description: Q2 2015 Earnings

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