Earnings Call: Q3 2010

Nov 18, 2010

Good morning. Welcome to GameStop Corporation's Q3 twenty ten Earnings Conference Call. Today's call is being recorded. At the conclusion of the announcement, a question and answer session will be conducted electronically. The Safe Harbor disclosure contained in GameStop public documents and is the property of GameStop. It is not for use by any other party without the prior written consent of GameStop. At this time, I'd like to turn the call over to Mr. Dan Dimitio of GameStop Corporation. Please go ahead, sir. Good morning and thank you for attending today's conference call. With me today are Paul Raines, our CEO Tony Bartel, our President Rob Lloyd, our EVP and CFO and Mike Mahler, our EVP of International. This morning, we announced we met the high end of our Q3 EPS range and raised our full year guidance due to several new initiatives that are performing extremely well. Our new loyalty program, PowerUp Rewards, has been accepted beyond our beyond our expectations by the consumer and Paul will speak more on this initiative later. GameStop now has the ability to sell add on digital in all U. S. Stores making us the 1st retailer to have the technology and marketing to sell DLC from retail doors. Our recently retooled e commerce sites in Spain, Germany and Ireland during the quarter and we are now driving traffic to congregate our online game platform from our e commerce site and retail stores. Tony will discuss plans for this business in his discussion. So 2010 has been a great year for making huge strides on our strategic initiatives, but we are not done yet. We are planning on taking these all to new levels in 2011 to drive in store, e commerce and digital revenues. Also, we understand the evolving nature of gaming and are identifying opportunities to expand the GameStop brand wherever gamers are playing as we have proven that there is a huge base of customers that shop our stores and play games digitally such as on Congregate. We remain focused on continuous growth in our return on invested capital through prudent store growth, strategic initiatives to grow market share, aligned investments in the digital space and cash returns With that, I'll turn it over to Paul for his comments on the quarter and the outlook for the balance of the year. Thanks, Dan. I would like to start off my remarks by thanking our team of over 50,000 associates worldwide. GameStop associates around the world continue to bring power to the players by providing the best customer service, value and assortment in video gaming. We saw strength in the core business this quarter, driven by new software titles and record market share. New software grew 9 percent as new game players reacted well to our unique launch process and buy sell trade value proposition. We were pleased to have the 1st global launch of unique content with Halo Reach as GameStop stores around the world offered consumers unique body armor to drive market share at launch. Hardware sales declined 14% due to price cuts and international weakness in hardware. We were also pleased to see positive comps in our U. S. Business. The used business, which is overlapping 19% growth in the Q3 of 9 grew 4%. Next generation used software continues to grow, while older generation continues to decline. As we have seen in the past, consumers are spending on new titles at launch with some impact being felt in used software. Same store used inventory levels are in excellent shape going into the peak holiday season. As we have pointed out in the past, we build inventory aggressively during this time of the year to drive higher sell through at holiday and our average inventory levels are well above last year in the the weekly analysis of used sales in stores within competitor trade areas. That analysis indicates no from competitors to our used sales. As we told you on our last call, we chose to accelerate the rollout of our PowerUp Rewards the unique benefits of the program and we are building relationships with them that will drive share of wallet through holiday. A few color items on PowerUp Rewards. Members are shopping with us 3 times as often as non members and they above average customers on both trading games as well as multi channel shopping. Members are also activating their membership by building their game libraries online and we now have over 20,000,000 games in those libraries, allowing us to market and recommend to those customers in unique ways. PowerUp Rewards is a key part of our holiday strategy and you will see us leverage the program to communicate in a stealthy and personal way with our most valuable customers and also support our publishers' launches. We are pleased with the progress we are making in executing the multichannel strategy we have developed. Transactions including a digital SKU grew to 9.9% during the Q3. We watch this metric closely as it gives us a view to the chronology of digital adoption and are seeing more and of digital adoption and are seeing more and more consumers buy both digital and physical products in our stores and on our sites. Unlike any other player in gaming, GameStop is is In terms of our outlook for the Q4, we are seeing strong consumer reaction to the title slate and motion accessories. Strong titles plus Sony Move, as of Duty: Black Ops. Lastly, the benefits of PowerUp Rewards are giving gaming consumers one more great reason to shop at GameStop stores and websites. I will now pass the call over to Rob. Thank you, Paul. Good morning, everyone. I'd like to start off my remarks today by reviewing our capital allocation program and providing some commentary on the balance sheet. As we discussed on our last earnings call, we've established a capital allocation program, which reflects our focus on return on invested capital. We believe the business will continue to produce adequate cash flow from operations over the next 4 to 5 years to fund our prudent store expansion aimed at market share growth, our strategic digital investments and acquisitions, Since then, we called 200,000,000 dollars Since then, we called $200,000,000 of debt on October 29 and repurchased and retired 2,600,000 shares of common stock at an average cost of $18.91 per share using just over $49,000,000 of our current $300,000,000 share repurchase plan. After the debt and stock buybacks, GameStop closed the quarter with $181,000,000 in cash. Total company inventory levels increased 8.3% on a 1st store basis year over year. The increase is related to having Connect and Call of Duty Black Ops inventory in stock ahead of their respective launches and increases in used inventory. Inventory turns have remained comparable and accounts payable leverage percentages increased from 76.6 percent to 78%. Now I'll review the financial results for the launches such as Halo Reach, Fallout New Vegas and Medal of Honor. Building on strong U. S. Market share gains in the 1st and second quarters, GameStop continues to take share in the new video game software category. Our year to date share gain in new software now stands at 580 basis points. U. S. Comps were positive for the 3rd quarter in a row coming in at 5.3%. International comps were lower than planned due to weakness in hardware sales, resulting in total comparable store sales of 1.1%, lower than our guidance of +3 percent to +6 percent. Internationally, as we discussed in August, significant economic recovery in the countries in which we operate has materialized, so we continue to have modest full year growth estimates. Despite this, we expect total company comps to be positive for the remainder of the fiscal year based on a strong lineup of software titles and consumer excitement for Sony Move and Microsoft Connect. As Paul mentioned, the used category grew 4% during the quarter, which showed improvement from Q2, but less than we'd forecast. Paul also talked about our used inventory position sets us up for growth in the 4th quarter. We project that the used products category will increase between 8% and 12% in the 4th quarter, bringing full year growth in at 4% to 6%. Consolidated gross margins improved by 30 basis points to 28.5% in the prior year quarter, as we experienced a shift in sales from lower margin hardware to new software and accessories. Used margins were slightly better than last year and increased 140 basis points over the Q2. Continued rollouts of best practices have led to improvements in international used gross margins. SG and A expenses increased as a percentage of sales versus the prior year quarter from 21.3% to 21 point 5% and were essentially flat on a per store basis. This is slightly less than our anticipated increase of 30 basis points to 40 basis points for the full year as we invest in strategic initiatives. The effective tax rate for the 3rd quarter was 29.6% compared to 32.5% in the Q3 of 2,009 with a decrease due to accounting for uncertain tax positions. Net earnings were 54 point $7,000,000 and excluding debt retirement costs, diluted earnings per share for the quarter were $0.38 exceeding analyst consensus estimates and showing 19% growth over last year. Based on the strength in our new software business, demand from Microsoft Connect and Sony Move and the effective capital allocation plans, we are raising our 4th quarter and full year 20 10 guidance. In our 2nd quarter earnings release, we added $0.03 per share to our 4th quarter guidance for the effect of our initiatives in Connect. And we are now raising that implied guidance range of $1.49 to 1.5 $6 to a range of $1.53 to $1.59 Diluted earnings per share for the full year have been raised from previously released guidance of 2.5 $8 to $2.68 up to a range of $2.63 to $2.69 Now, I'll turn it over to Tony for his comments. Thanks, Rob. During the quarter, we continued to evolve our digital efforts both in our stores and on our website. In our stores, we expanded our downloadable content efforts by beginning the rollout of Sony downloadable content to all stores, an effort that will be complete in the next 3 weeks. We also began a first ever pre ordering campaign for Halo Reach Noble Map Pack that allows a customer to preorder downloadable content and have the code delivered to them electronically as soon as the content is available. We're launching the Halo Reach Noble Map Pack as a major game release with a full media campaign focused on pre ordering with a GameStop exclusive flaming Mark V helmet for your Xbox Live Avatar. The TV advertising started today and we are already pleased with the pre orders that we are receiving. As we've said previously, there's a lot of great content that developers have created to enhance console gameplay and we are working with the publisher community to market these downloadable content launches. Now that we are able to offer digital content on the day of launch, HALO REACH Noble Map Pack represents our initial entree into a program of pre selling and digitally releasing downloadable content on both the Microsoft and Sony platforms. As Paul mentioned earlier, we are seeing a 9.9% attach rate of digital content to our transactions and half of the customers who purchase downloadable content are purchasing it with a game. So we see that the release of this content is actually driving game purchases. During Q3, we also made significant changes to our website, including implementing pickup at store, streamlining our checkout process, making our product pages more shoppable, integrating with our PowerUp Rewards program, adding the sale of downloadable content online and expanding our capacity to handle the expected Q4 demand. Continue to be the fastest growing website in the gaming space as we became the number 2 largest online game retailer behind Amazon. We more than doubled our sales in Q3 and are poised to have the best Q4 on dotcom in our history. Our digital gaming platform, Kongregate, continues to thrill online gamers and attract new game developers. Kongregate and continue to grow as a percentage of revenue generated. Kongregate provides us with a robust gaming platform that can reach beyond the PC and on the phones, tablets and even into the connected living room. And our roadmap for 2011 includes plans to pursue these areas of growth. Those of you with an Android phone can already enjoy many of Kongregate's great games by accessing the website directly from your flash enabled phone. With that, I'll turn it over to the moderator for questions. Thank you. The question and answer session will be conducted electronically. Our first question comes from the line of Matthew Zasler from Goldman Sachs. Hi. This is actually Marc Andre filling in for Matt. How are you? Well, thank you. Good. First, I wanted to ask about Kinect. If you could give us an early read on what you're seeing? And also, what do you think the estimated share for GameStop would be relative to your typical share of hardware in the industry? And then I have a follow-up. I'll pass that on kind of Tony. We've been very pleased with our Connect. We don't give out share information on specific titles. So, I'm not going to give share on that title. We've been very pleased with our Connect sales. The biggest opportunity that we have is just keeping them in stock. This will be a hot item throughout the holiday season and the key opportunity will be just to continue to keep in stock. So whenever consumers do see Connect and they want Connect for the holiday season, they should pick it up because it will be in short supply during the holiday. Okay. Thank you. And then as a follow-up, on the international performance, could you talk to the differences between the different countries? I know we're going to get some more color when the Q comes out, but differences by country and the drivers and what the outlook is? Yes. Mike, would you take that? Sure. I could add some color to that. In most countries, the rebound from the recession has been slower than in the U. S. This handhelds. However, internationally, we did see growth in new and used software sales and market share. So actually this change in mix as well as an improvement in our used margins resulted in higher overall margin internationally versus prior year. So in Q3, internationally we drove a 6% earnings increase versus prior year due to increases as well as aggressive cost control and a number of new initiatives that we rolled out, including e commerce in 3 new markets, Spain, Ireland and Germany. We also continued the rollout of our proprietary used pricing model, which was one of the drivers of the used margin increases and we expanded refurbishment capabilities internationally. So looking forward, Q4 has a real strong slate of new releases and we anticipate positive comps in the quarter. Let me also touch on future new store growth. For new store growth, we're very focused, as was mentioned earlier, on ROIC. And so in mature markets like Canada or Australia, we'll see slowing store growth, but will be much more judicious in our site selection. However, there are still strong growth opportunities in other markets such as Italy strategic initiatives, many of which are the ones that Tony mentioned, such as the ongoing expansion of our e commerce capabilities in new markets, DLC worldwide rollout, and finally, the international rollout of the Power Ups Rewards loyalty program, so that customers in all countries can really see the benefits that the customers are seeing in the U. S. And France currently with their loyalty programs. Got it. Very helpful. Thank you. Our next question comes from the line of Brian Nagel from Oppenheimer. Hi. Good morning. A couple of questions if I could. Just first off, I want to ask about Microsoft Connect as well and really this and the Sony new technology. But as you look at initial sales, I guess a couple of questions there would be, first off, do you think this is bringing a new customer to your stores or is the customer consistent with the traffic that's already in the stores? And how do software attachment rates so far on these new hardware technologies compare with some of the prior hardware launches over the last few years? Tony, you want to take that? Sure. We definitely do see a new customer coming into our stores and it is selling hardware as well. As you could see even in the NPD numbers with Xbox 360s on increase in October's NPD numbers. In terms of attach, there's a very high attach rate. In fact, when you look at the top attaching games, say in Connect's case, where it is Connect Sports as well as Dance Central, those are definitely the expanded audience type of games and those are attaching extremely well. So we are not only excited with the sale of Connect and with Move, both of which are going to be in short supply during the holiday season, but we also like the fact that they are bringing the expanded audience and the games that are going out with both of those attaching well and are expanded audience games. Brian, one of the things you see customers do is you'll hear customers tell you they're bringing the Xbox down from the sun's room down to the family room, so they can use it as a family, which is a great indication of what's happening. And maybe just one follow-up, obviously a lot of chatter already on the upcoming Black Friday and holiday selling season. How would you guys characterize some of the advertisement you've seen so far in the marketplace? Paul, do you want to take that? Sure. Well, we this time of year, everyone jumps into the gaming category. We know that's going to happen every year. I think things have evolved as we expected. You will see us react in some familiar ways as well as some new ways. We're going to continue to offer the broadest assortment, the best value with buy, sell, trade. You'll see us use that in unique ways. We are going to be driving a guaranteed in stock message to consumers. Our consumer work tells us the most important thing is to be able to find that hot title for the Christmas presents. And lastly, we'll see competitors come out with different kinds of promotions. We now have PowerUp Rewards available to us as a promotional tool and that's one of the reasons you heard us accelerate the rollout into the 3rd quarter because we wanted to have those millions of personal relationships with our heaviest buyers ahead of holiday. So we think it'll be similar to what we see every year in terms of the key players coming in, but we've also got some new ways to approach that. Thanks and best of luck for the upcoming holiday season. Thanks. Thank you. Our next question comes from the line of Mike Hickey from Janco Partners. Hey, guys. Great job on the quarter. Thanks for taking my questions. Good morning. When you guys consider your 2% to 4% same store sales guidance for your holiday quarter, what would you view as your opportunities versus risks? Rob, do you want to answer that? Sure. Obviously, the opportunities are around the Connect and the Move and the titles have launched. Clearly, I think that what we've seen so far this year is that the hardware sales and the used sales have not been where we had forecasted earlier in the year. And so those would be the obvious things that you would point to. Okay. And then a follow-up if I could. On Connect, Dan, I was curious how you see this market taking shape perhaps relative to the question, you're talking about how that growth compares to what we saw at the launch of the week? Yes. I see a very strong marketplace for this and I see the fervor that is beginning during the holiday season for the Connect and move is very, very strong. I see that there as we have in the belief phenomenon where you had customers following the UPS truck to our stores, I think you're going to have the exact same thing with mood controllers and with the connect bundle that goes out. I think you're going to have consumers following the UPS store to our sorry, the UPS truck to our stores to pick up that product as soon as they can find it. Okay. Thanks, guys. Our next question comes from the line of Tony Weibel from Janney. Hi. Just a couple of quick questions. The in stock guarantee that you guys have, would that be applying to Connect? And then also if you guys could talk a little bit about the seasonality for the game calendar in 20 11 and any titles out there that think would break that traditional seasonal pattern? Paul, do you want to take that part? Yes. Hey, Tony. No, the in stock guarantee does not apply on Connect. That's one we've got. We have as Tony said, we've got huge expectations around that product and we're just trying to get as much of it as we can in. But we have got the in stock guarantee on most of the hot titles, if not all of them, and you'll see that in our promotional materials and the idea is we want consumers to know that GameStop is the best place to go for their shopping needs and if we don't happen to have it, which we very unlikely we won't, we will ship it to you free and find a way to get it to you from our website, etcetera. So I'll let Tony maybe talk about that season. Dan, you want to take that? On next year's visibility, I think that was your question. We have limited visibility at this point in time on next year. But I do believe that we can have growth in the packaged goods category next year. 1st, we'll be comping obviously a weak year. Secondly, we will have the new handheld system with the Nintendo 3DS. 3rd, hopefully, we get expanded audience back into the gaming category, which seems to have left this year with the move and with the Connect. And so I think that there's a good possibility without knowing all the titles next year, I think the industry is being well positioned to have a growth year in 2011 over 2010. Do you think we'll see a new PSP next year? I don't have much visibility on that. No, I do not. Nothing I can comment on. 3 d could be interesting as well, Tony. Okay. And I'm sorry for the last question, but you guys have been paying down debt and equity. I was in closing just hoping you guys could explain a little about how you think about the allocation of either paying down one versus the other? Rob? Yes, I think Tony, a part of the reason we did the debt that we did was as we look ahead to the maturity of that debt in October of 2012 and we look to the potential renewal of our credit facility, which expires in April of 20 12 and we felt that we would be able to renew the credit facility on better terms if we had a lighter debt load than the $450,000,000 that was there. Going forward, we'll make any decisions between debt retirement and stock buyback based upon what we see as the liquidity needs of the company and the overall capital structure that we desire to have and lastly, whatever effect it might have on ROIC. Great, thank you. Our next question comes from the line of Colin Sebastian from Lazard. Thanks for taking my questions. I guess first off following up on the used segments, I was maybe hoping for some clarity on the margin expectations there looking into Q4 and if perhaps you do expect some of the big box competition to add some pricing pressure there? And then secondly, on the digital initiatives, which appear to be gaining traction now on a couple of fronts, I wonder if it's possible to quantify the contribution at all from digital including e commerce just so we can start to gauge the pace of progression there? Thanks. Paul, do you want to take the first part? Yes, sure. Hi, Colin. Certainly, in terms of used in the 4th quarter, as we mentioned, we grew 4% and it's seen some acceleration from the 2nd quarter. We're very focused on our inventory levels and getting our inventory levels up to where we want to be going into holiday. As we've said before on this call, we have a lot of history. We know how well the ramp runs and want to make sure we're ready. So we feel good about that. In terms of margin expectations, 46% to 49% is what we've quoted as our margin expectation and that's consistent. We've not experienced impacts from competitors. We know that there's we've had lots of discussions with lots of people on that and we're very focused on running our play, which as you know, has very significant hurdles for our competitors around pricing, balancing, refurbishment, pawnshop legislation. So buy sell trade will again be our primary value driver for the consumer at Holiday and we don't see any digital we understand the need to quantify that and begin to articulate that. We aren't prepared to do that at this time, but we are discussing internally how we will quantify that for you and we will have more to talk about on our next release. Part of this, Colin is understanding what the hybrid behavior is of the consumer. As Tony mentioned, we're seeing consumers what's happening at GameStop now, people who've never bought DLC, moms, dads, grandparents are getting introduced to digital content. People who've never seen what a free to play gaming platform looks like are getting introduced to it. So we're changing the consumer behavior and part of our mission, I think, is to understand that behavior and how we report it and measure it, etcetera. And what we're seeing is that a multichannel consumer is a larger consumer of gaming overall. So we're seeing that trend as well. Okay, great. Thanks, guys. Our next question comes from the line of Gary Vaucher from Credit Suisse. Hi. A few questions. One is, as we look at the Christmas season, you had mentioned in the past that MAP isn't on the Wii and I guess anything made by Nintendo on it. What do you see the impact of that and without discipline disclosing your promotional strategy, does that leave more opportunity to be selective with some of the promotions? Hey, Gary. I think a couple of things. If you look at last year, what happened in the promotional environment, we actually gained share and held serve on a lot of the action titles that were promoted and marked down in the channel, which tells you that our ability to provide value and service and assortment in store is worth a certain amount of value to the consumer. If you look at markdown hardware, we know that that's one where the big boxes can have a pretty big impact. If you talk about MAP not being applied, we are expecting all kinds of promotions around that and are planning for it and have a healthy allocation of product going into holiday and we'll run our play accordingly. And in terms of value, it's important to remember buy sell trade is all our consumer work tells us buy sell trade is the highest value proposition even more than discounts because we can bring trade credits to consumers over $1,000,000,000 of trade credits. So we'll be using that to deal with whatever happens in promotional area. Could you on that and kind of tying into the second question, the PowerUp Rewards, which you talked about earlier on the call, how sticky do you sense that that's making some of your customers because that's a great tool that's not matched by some of your competitors? You're exactly right, Gary. The behavior of PowerUp has surprised us. If you remember our 2Q call, we were kind of surprised by what our pilot market showed us when we started in May and we chose to accelerate. One of the reasons is we're seeing consumers far stickier than we thought they'd be. We're not ready to talk about all of that for competitive reasons, but when we say that people are shopping us with 3 times the frequency, we're really seeing a subset shop us even far more than that. So we're seeing consumers in what is a price parity category, right, because the category is generally all the same price. Given consumers one more reason to turn other thing that's happening, Gary, is our ability to communicate individually with consumers based on their game library has become a very powerful marketing effort. We're seeing a lot of productivity from those unique recommendations we're making and those unique messages. In fact, Tony talked about our DLC launch, that's available only to PowerUp Rewards members because we're going to communicate with them through our encrypted site at poweruprewards.com. So lots of interesting sticky opportunities for that consumer. Gary, another source of stickiness through PowerUp Rewards. As we use that to market to our consumers and send them to congregate.com, we find that those consumers that come from PowerUp Rewards register at a much higher rate on congregate.com than any other customers coming. So we also see stickiness on our expanded areas of growth, not just in our stores. And if I buy the Connect, then I'll start using my Power capital. Could you quantify kind of how we should think about that, like what the buyback will be going forward? And because you're generating so much cash each year and the other drivers, like how much of that do you think will come from just repurchasing stock and how much will come from other drivers just operationally? Gary, I'm not sure that we're in a position to break down how much of that 400 basis point improvement that we've talked about will come from buyback versus other initiatives. But rest assured that within our plans, that sort of controlled growth that we've talked about in our store base where we can get market share and achieve desired returns as well as the initiatives that we're investing in, in loyalty and digital and e commerce will drive ROIC and then Okay. Thank you. Our next question comes from the line of Arvind Bhatia from Stern AG. Thank you. Just actually a couple of housekeeping questions. First on new store openings, what they were this quarter, just to get a net number? And then you talked about recently next year you plan to have or go forward you want to have 2% to 3% net store growth. Can you tell us 2011 what you're thinking gross store openings? And then second one is what was the stock compensation expense in the Q3? And what is the full year share count that you guys are expecting? Yes, Rob. Let me start with the latter couple of questions. The stock compensation expense in the Q3 was approximately 10,600,000 and we expect the full year share count to be approximately 153,000,000 to 154,000,000. Dollars And then your questions were on the number of openings and we obviously 8 openings and 82 closings. In the quarter, we opened 78 stores and closed 21. Our expectations for next year are between 34 100 store openings and between 102 100 store closings. And then just a quick one on used margins this quarter being strong. I think part of that you said was international. What was the trend in used margins within the domestic numbers? Did that number also go up? We're not disclosing what the margins were domestically versus internationally on a specific basis. I think directionally with the best practices to improve margins is gaining traction and we're seeing the results that we were hoping to see from that. The increase wasn't all international, right? The domestic margins weren't any there wasn't any change in the trend there. Is that fair to say? I think that's fair to say, but again, I don't want to get into specifics. Okay. And last question if I could. The 2% to 4% comp in the 4th quarter, could you help us understand how you break that down domestic versus international? Well, I think as Mike stated in his remarks, our expectation is for positive same store sales within our 4 operating segments. Okay, great. Thank you. Our next question comes from the line of David Magee from SunTrust Robinson Humphrey. Yes. Hi, guys. Good morning. A couple of questions. One is on the power up side, how difficult will it be to get adoption among the non core gamers out there with that? Is that something that you can do? It seems like that being getting those customers to be more sticky during the holidays would be a How difficult will it be? I mean, interesting. So if I think we've shared this with some of you on meetings, but we've had an edge card at GameStop for a long time, very successful program, but it was focused on only the used business. One of the things that we have been surprised by that we've disclosed previously is 70% of our paid PowerUp Pro members were incremental to the Edge card. And what that means is we are bringing in a lot of new people to the paid membership. And that the way that looks when you're in a store, we're seeing a lot of moms, dads, grandparents, gift buyers, people who would not be our core Edge customer, would not be people who previously had shopped us and used, would not be people who previously received our Game Informer Magazine. So we are very encouraged by the incremental nature of PowerUp Rewards, both pro and free and find that it's bringing in a lot of people who weren't aware of GameStop's buyselltrade, for example. And you know that all the consumer work says the more awareness we get of buyselltrade with the consumer, the more loyal they become because it brings value into the equation, etcetera. So I would say all of those dynamics are pointing in the right direction for Holiday for us. Thanks, Paul. And then secondly, with regard to DLC over the next couple of years, I guess, sort of in a qualitative way, is it possible to expect that you all could approach the same share there as you have on the retail side for the new product and see similar margin over time with that business? Yes. Tony, do you want to take that? We definitely do see that as we begin to launch DLC like we are launching major titles, we definitely believe that our share will grow as we have unique content, as we have a pre order campaign, as we continue to take the friction out of the process and increase discoverability of DLC. We absolutely believe that we will approach and maybe even surpass the share that we have currently on Fox product. In terms of margins, as we stated earlier, we do plan that we will have margins that are similar to new game margins on the DLC. And trade credits will also begin to flow into that category that have never been there before. So that's another tailwind. Great, Jeff. Thanks a lot and good luck this holiday. Thank you. We have time for 2 more questions. Our next question comes from the line of Anthony Chukumba from BB and T Capital Markets. Good morning. Just had a quick question just following up on used sales in the quarter. I guess when you reported 2nd quarter sales or 2nd quarter results you guided to 7% to 9%. You said, look, we're getting back into inventory on used and sales were I mean they improved sequentially, but they're only up 4%. So I guess I was just wondering what was sort of the disconnect between what you guided to and sales only being up 4%. Rob? Anthony, I think what Paul talked about in his comments was that the new game buyer was stronger than we expected in the quarter. So as we talked about last quarter, the strength of the new brings in the trade and then sets us up for the used. And with all the titles that came out in September October, we continue to see extent that we expected. Okay. So to some extent, new was a little bit stronger than you thought and that sort of took away from used. Is that a fair assessment? That's a fair assessment. Yes. Okay. Thank you. And our last question comes from the line of Bill Armstrong from C. L. King and Associates. Good morning, guys. The DLC that you're offering in stores now, are these just for Sony and Microsoft published titles or do you have DLC from 3rd parties like EA and Activision? Tony, can you answer that? We have most of our DLC actually comes from 3rd party publishers. Definitely, right now, we have Microsoft rolled out in all of our stores and Sony is being rolled out in all of our stores in the U. S. At this point. But what we have is a wide assortment and where we are now with Microsoft and where we will be soon with Sony is, as new DLC comes out from any publisher, we will be offering that at the same time that it is available for Xbox Live or PSN users so that we can offer it in our store. That gives us the opportunity to allow for pre order and allow for pre marketing of that like we do with major titles and then deliver it digitally to our PowerUp Rewards members. So it is a full assortment of DLC that is available. We also have invested lots of money in our POS system and in our guides that are in our stores, so that we actually recommend automatically DLC with both new and used games and have DLC available. So it's a full assortment of titles that are for the Sony and Microsoft platforms. That is correct. Okay. How about Nintendo? Nintendo right now at this point is we are in discussions with Nintendo on this obviously and I think that we will continue to have those conversations at this point. We don't have a plan or a roadmap with them in the first half of next year that we put them in our stores, but it's definitely something we continue to talk with them as they evolve their digital strategy. I think we have a great retail environment that will be ready to international sales, obviously, were weak and I assume Europe led the way there. How was Canada and how was Australia, New Zealand relative to the overall international performance? Mike, would you want to take that? Sure. Really not prepared to break it out by region at the moment. But as we said, hardware declined more than expected, but actually new software and new software grew versus prior year. So it's a good mix change for us. Okay. And when you say in the Q4 you expect positive comp overall, does that mean within all four regions or not necessarily? I wouldn't want to break out the comps by regions, but internationally if you combine the 3 regions, we expect positive comps due to the strong slate of new releases. Got it. Okay. And then last question just housekeeping on the second to get to that data. You should be modeling something consistent with maybe a little higher than last year for Q4. Okay. Something like 37%, 38%, around there? That's reasonable, yes. Okay. Thank you. Okay. Thank you for attending today's call. Have a great Thanksgiving. Have a great holiday season. And please come and visit GameStop for all your gaming needs and join our new PowerUp Rewards program. We want you in our program and come to GameStop where we have the best service, the best selection and the greatest value