GameStop reports sales and earnings for Q4 and FY 2017, strong sales performance attributed to Switch

GRAPEVINE, Texas, March 28, 2018 (GLOBE NEWSWIRE) -- GameStop Corp.(NYSE:GME), today reported sales and earnings for the fourth quarter and fiscal year ended February 3, 2018. As a reminder, the fourth quarter of fiscal 2017 contained 14 weeks of operating results compared to 13 weeks in fiscal 2016 and fiscal 2017 contained 53 weeks of operating results compared to 52 weeks in fiscal 2016. Same store sales comparisons for the fiscal quarter and fiscal year are based on the most closely comparable weeks for the 14 week and 53 week periods.

Mike Mauler, chief executive officer, stated, “Our fourth quarter performance continued to demonstrate that GameStop is the preferred destination for the gaming and collectibles customer. Our strong sales performance over the holiday period and throughout the fourth quarter was driven by compelling Black Friday and holiday promotions, driving growth in hardware, particularly the Nintendo Switch. Our industry leading position enabled us to provide customers with the best selection of consoles and games for the best price, in turn increasing our market share for the quarter. Our collectibles business also continued to deliver robust growth, further demonstrating that the business will be an accelerating contributor to GameStop’s profitability.”

Mr. Mauler continued, “While we had a solid performance in 2017, there are still many areas to improve that will drive future profitability. We have three core profitable businesses; Video Games, Collectibles, and Technology Brands. Moving forward over the next year, we plan to pause on investing in additional new businesses or acquisitions and focus on the fundamentals of improving the businesses that we already have. I believe focusing on the basics of retail operational excellence across the organization will maximize our free cash flow, improve our performance and, ultimately, deliver returns for our shareholders.”

Fourth Quarter Results
Total global sales increased 15.0% to $3.50 billion (12.3% in constant currency), resulting in consolidated comparable store sales growth of 12.2% (+14.2% in the U.S. and +8.3% internationally). New hardware sales increased 44.8%, led by demand for Nintendo Switch, and new software sales increased 12.4% driven by a strong title lineup. Consistent with the company’s expectations, pre-owned sales declined 2.6%. Worldwide omnichannel sales increased by 24.8% on the strength of new hardware sales.

Digital sales and non-GAAP digital receipts increased 41.0% and 16.1%, respectively, excluding the fourth quarter 2016 revenues from Kongregate which was sold in July 2017. On a reported basis, digital sales increased 7.3% to $61.4 million, while non-GAAP digital receipts increased 10.6% to $413.0 million.

Collectibles sales increased 22.8% to $260.8 million, driven by continued expansion of licensed merchandise offerings and targeted promotions during the holiday period.

Technology Brands sales decreased 14.2% to $219.7 million, driven primarily by the previously disclosed change in AT&T’s dealer compensation structure. Technology Brands GAAP operating loss was ($359.8) million due to $390.9 million ($258.5 million net of taxes) in asset impairment and other charges. Technology Brands operating earnings, excluding impairment and other charges, were $31.1 million, an 8.5% decrease compared to $34.0 million in the prior-year quarter.

GameStop’s fourth quarter GAAP net income (loss) was ($105.9) million, or ($1.04) per diluted share, compared to net income of $208.7 million, or $2.04 per diluted share in the prior-year quarter. The fourth quarter results include asset impairment and other charges of $406.5 million ($310.9 million net of taxes), or $3.06 per diluted share, primarily non-cash and related to the Technology Brands business. The positive impact of tax reform legislation was $3.0 million, or $0.03 per diluted share.

Excluding asset impairment and other charges and related tax adjustments, GameStop's adjusted net income for the fourth quarter was $205.0 million, compared to adjusted net income of $243.8 million in the prior-year quarter. Adjusted earnings per diluted share were $2.02 compared to adjusted earnings per diluted share of $2.38 in the prior-year quarter.

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

Fiscal 2017 Results
Total global sales increased 7.2% to $9.2 billion, while consolidated comparable store sales increased 5.8% (4.3% in the U.S. and 9.2% internationally).

Key takeaways for fiscal 2017 include:

New hardware sales increased 28.3%, led by demand for Nintendo Switch.
Collectibles sales increased 28.8% to $636.2 million on strength in unique and exclusive product offerings.
Digital sales and non-GAAP digital receipts increased 13.8% and 7.1%, respectively, excluding 2016 revenues from Kongregate which was sold in July 2017. Reported digital sales increased 4.5% to $189.2 million, while non-GAAP digital receipts increased 5.2% to $1.2 billion.
New software sales increased 3.6%.
Pre-owned sales declined 4.6%, consistent with the company’s expectations at the beginning of the year.
Generated free cash flow of $324.7 million.
GameStop's fiscal 2017 GAAP net income was $34.7 million, or $0.34 per diluted share. The fiscal 2017 GAAP results include asset impairment and other charges of $399.7 million ($303.9 million net of taxes), or $3.00 per diluted share, primarily non-cash and related to the Technology Brands business. The positive impact of tax reform legislation was $3.0 million, or $0.03 per diluted share. This compared to net income of $353.2 million, or $3.40 per diluted share in fiscal 2016.

Excluding asset impairment and other charges and tax related adjustments, GameStop's adjusted net income for fiscal 2017 was $338.6 million, compared to adjusted net income of $390.9 million in fiscal 2016. Adjusted earnings per diluted share were $3.34 compared to adjusted earnings per diluted share of $3.77 in the prior fiscal year.

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

Capital Allocation Update
On February 21, 2018, GameStop announced that its Board of Directors declared a quarterly cash dividend of $0.38 per common share that was paid on March 20, 2018 to shareholders of record at the close of business on March 5, 2018.

2018 Guidance
GameStop is providing the following guidance for fiscal 2018 with expectations for earnings to be substantially back half weighted for the fiscal year given the overlap of the Nintendo Switch launch in the first half of the year and expected strength of the title line up in the second half of the year.