Earnings Call: Q3 2020

Dec 8, 2020

Greetings, and welcome to the GameStop Third Quarter 2020 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Cerney, Investor Relations. Thank you, Mr. Cerney. You may begin. Thank you, and welcome to GameStop's 3rd quarter fiscal 2020 earnings conference call. This call will include forward looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Any such statements should be considered in conjunction with the cautionary statements in the Safe Harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. GameStop assumes no obligation to update any of these forward looking statements or information. Reconciliation and other information regarding non GAAP financial measures discussed on the call can be found in the earnings release issued earlier today as well as the Investors section of our website. With me today are GameStop's Chief Executive Officer, George Sherman and Chief Financial Officer, Jim Bell. On today's call, George share insights into our business and strategic framework for the future. Jim will then provide more detail on our financial results and expectations for fiscal 2020. Then we'll open the call to take questions. Now I would like to turn the call over to the company's Chief Executive Officer, George Sherman. Thank you, Eric. Good afternoon, everyone, and thank you for joining us today on our Q3 earnings call. I hope you're all safe and well. The 3rd fiscal quarter represents a key pivot point in our trajectory to stabilize, optimize and transform GameStop. We have made significant strides in stabilizing and optimizing our core operations and are excited about the transformational plan we are executing that will enable us to create long term value as our industry continues its rapid growth. Our 3rd quarter results were largely as we had anticipated, marking the end of a challenging sales performance period as the industry transitioned from generation 8 to generation 9 console video gaming products. The transition, coupled with the impact of a global pandemic on consumer retail mobility and also to some extent supply chain disruptions, is now segueing into what we see as a period of sustained growth, the beginnings of which I'll highlight in a moment. First, to summarize the Q3. As we had anticipated, sales and profitability were down with comparable store sales declining 24.6 percent in an adjusted loss of $0.53 per share. But that notwithstanding, we saw 2 57% growth in our e commerce sales versus the prior year, reflecting investments during the year that enhanced our omni channel capabilities. We continue to reduce expenses, delivering over $315,000,000 in SG and A expenses expense reductions so far this year, and we are pleased to end the quarter with almost $300,000,000 more in cash and restricted cash compared to the end of the prior year Q3. As I mentioned, we've made significant strides in stabilizing and optimizing our core operations over the last 15 months and are excited about the plan we are executing for the rapid evolution of GameStop. Despite the unprecedented environment during the global pandemic, our strong performance in November shows not only where we are, but the rapid pace of our transformation, beginning with the cost reductions and significantly improved balance sheet delivered by our ongoing work, followed by the console launch in early November and now our focus on key transformational strategies that will power future growth. Our goal is simple. We are positioning GameStop to be the leading global omni channel retailer for all things gaming and entertainment. We are encouraged by our successful efforts in 2020 to begin category and product extensions that increase our addressable market as well as by our customers' early response to an expanded products and services offering. At the forefront of this strategy is a digital first approach focused on delivering a best in class e commerce experience along with an optimized retail footprint. Together with enhanced fulfillment options, they provide our customers with the most comprehensive set of games and entertainment products and events wherever, however, and whenever they want them. The current console based video games product are an important element of our strategy over the next few years, and we realized a very successful launch of the next generation products in November, driving 16.5% growth in comparable store sales. This was the first positive comparable store sales month in nearly 2 years, despite being closed on Thanksgiving Day in North America and the ongoing negative impact of COVID-nineteen, which saw the closure of the vast majority of our European storefronts for the entire month. In addition to the appeal of the next generation of consoles, these results also reflect the significant improvements we have already made to the performance of our omnichannel platform as global online sales in the month of November grew 3 52%. In line with these early results, we expect to generate strong sales growth and profitability in the final quarter of the year. Let me review some of the additional highlights for the Q3. Jim will share some of the specific details of the quarter, but broadly speaking, our global store fleet saw on and off periods of store closure or restricted access to customers, particularly as COVID-nineteen cases accelerated around the world in October and then through November. We believe the pandemic and importantly the depression of retail consumer mobility lowered our comparable sales in the 3rd quarter by 3 to 5 percentage points. Pivoting to our strategic accomplishments in the quarter, We continue to optimize our core business by improving efficiency and effectiveness across the organization, leading to a reduction in SG and A expenses of nearly $115,000,000 for the quarter, bringing our total for the year to over $315,000,000 versus 2019, roughly 2 thirds of which we view as permanent. We continue to work quickly to optimize our omnichannel capabilities through the transformation of our physical store presence. Through the Q3, we have closed almost 800 stores worldwide since the beginning of 2019, representing both underperforming locations and de densification in certain trade areas. We expect these closures to create a more profitable footprint. In the U. S, we continue to see strong sales and profit transfer to neighboring locations and e commerce, an important point in supporting the continued optimization of our store fleet. Consumer affinity for our continually improving e commerce experience and the ease of shopping and same day delivery of our omni channel fulfillment is increasing efficiency across our store footprint. By the end of the fiscal year, we will have closed over 1,000 stores since we began this optimization journey in the middle of 2019, all with little to no capital outlay. Given the strength of our e commerce sales and omnichannel capabilities, which I'll comment on momentarily, we now see the opportunity to close additional stores going forward in 2021 2022 as we optimize the profitability of an omnichannel architecture. Overall, our goal is to serve our customers wherever, whenever and however they choose to shop. We continue to improve our balance sheet. We again improved working capital management with a 33% reduction in inventory and a 38% decline in accounts payable, ending the period with $603,000,000 of cash and restricted cash, about $300,000,000 more than the prior year Q3. Finally, as a result of the continued strength of our balance sheet, we further enhanced our capital structure with the announcement of the voluntary early redemption of $125,000,000 or approximately 63% of our outstanding notes due in 2021. As you know, we remain very committed to our efforts to build a frictionless, digital first omni channel ecosystem and our customers are responding, significantly changing the way they shop with us. Our focus on customer centricity and the best end to end customer experience has led to recent material gains in our e commerce business and we expect to build on this success reinforcing the core focus of our go forward strategy. In the Q3, we delivered a 2.57% increase in e commerce sales versus the prior year, fueled by our elevated omni channel capabilities. E commerce penetration continues to grow and represents nearly 25% of total sales this year, up from a low single digit percentage historically. We are also leveraging our expanded fulfillment capabilities such as curbside pickup, buy online pickup in store, ship from store. And in the Q3, we rolled out same day delivery for online transactions to 2,000 locations and now have that option available in all of our U. S. Stores. Given our relatively high average transaction size, we can profitably partner with last mile delivery services to provide customers with same day delivery. Our new mobile app, which launched fully in October, is much more engaging than the previous version and provides newly available functionality and a dramatically improved customer experience. The app is customizable, enables customers to personalize features, select same day delivery options and browse a curated deal hub. With more people downloading and using the app on a weekly basis and engaging with it for longer periods of time, we've seen a significant increase in engagements leading to transactions, a 30% increase in conversion. With the increased usage, e commerce sales originating from the app have now doubled. We are very pleased with the initial performance and look forward to rolling out additional features such as the gamer news feed and a comprehensive easy to use digital wallet in early 2021. Going forward, you will see us leverage our GameStop ecosystem of stores, e commerce and our app to deliver an enhanced 360 degree experience for consumers with products and services that are more relevant to how they connect and play on devices today and in the future, all with a focus on driving customer lifetime value. These efforts have already resulted in and we believe will continue to lead to higher conversion, basket size, frequency of purchase, as well as a new customer acquisition for our PowerUp loyalty program. As you appreciate, these are very encouraging metrics. The progress we made during the quarter on our strategic initiatives despite the COVID-nineteen backdrop largely completes our optimization and stabilization phases of our strategy, which we've been working on for over the last 15 months and positions us for the next phase, transformation. Before discussing our future plans and opportunities, I'd like to quickly review the material accomplishments that we set out to achieve with the launch of GameStop reboot just 15 months ago. In that time, we optimized our physical store presence through the ongoing de densification and will have closed over 1,000 stores by the end of 2020. We exited unprofitable businesses in the 4 Nordic countries and divested of the Simply Mac business unit. We continue to take cost out of the business, significantly reducing SG and A by $316,000,000 year to date and over $440,000,000 from our starting point in the middle of 2019. We increased productivity with an improved store labor strategy, invested in our e commerce platform driving 4 33% growth in the channel to nearly 25% of sales year to date. We improved inventory management with faster turns delivering well over $300,000,000 in working capital benefits key to our ability to definitely navigate this pandemic. We monetized several assets, including the sale leaseback transactions for 5 office buildings and the sale of our corporate jet, adding over $95,000,000 in liquidity. We enhanced our financial flexibility with the completion of an exchange offer and consent solicitation for $216,400,000 of our unsecured notes, reducing the amount due to mature in March 2021 to approximately $198,000,000 of which we have already announced the voluntary early redemption of 125,000,000 dollars By March, we will reduce the overall debt on our balance sheet by almost $600,000,000 since early 2019. We repurchased 38,100,000 shares since the spring of 2019, approximately 37% of shares outstanding at the time at a weighted average price of $5.21 And we significantly expanded our customer payment options, including elevated focus on our private label credit card, adding several new several buy now pay later options and launch rent to own options to complete the payment stack. As we enter the Q4, we have several tailwinds that set us up to win during this holiday season, starting with the and we're expanding the spectrum of products and services we sell to position GameStop to be a worldwide leader of games and entertainment for our customers. As many of you have seen, we have begun to expand our SKUs to include PC gaming, computers, monitors, game tables and gaming TVs to name only a few categories. Many of these SKUs will continue to be online exclusives. PC hardware and accessories represent a major market opportunity and industry research by NPD shows that the large majority of console gamers also play PC games. Our overarching goal is to leverage the power and competitive advantages of our brand, significant loyalty base, dedicated and experienced sales associates and expansive omni channel capabilities to drive lifetime value across all things games and entertainment. As customers evolve the way they play, we are evolving with them, expanding our addressable market as we expand our suite of products and services to meet their needs. In closing, as we look back over the 5 quarters since launching GameStop reboot, we are very proud of the tenacity of our teams to not only produce meaningful results during the stabilized and optimized stages of our plan, but to do so all while delivering our products and services to our customers and doing so in the middle of an unprecedented business disruption caused by the global pandemic. Transformational work we now have underway. As we look to next year and beyond, we are confident in our strategic plans and the transformation of improved results and long term sustainable growth at GameStop. Now let me turn the call over to Jim to discuss our financials in more detail. Thank you, George. Good afternoon, everyone. I'd like to take this time to walk you through our Q3 fiscal 2020 results and then I'll share some insight into the success of the new video console launch and how we're approaching the Q4. As George discussed, we advanced our strategy in the Q3, making significant progress on our near term goals of optimizing our core business by reducing expenses, improving our inventory management and strengthening our balance sheet and capital structure. And we did so while continuing to focus on transforming GameStop for the future to deliver profitable long term growth. With the Q3 behind us, we are intently focused on maximizing all that the new console cycle has to offer, expanding our foundational work on our elevated omni channel platform and more efficient operating model and quickly but methodically evolving the business to expand our addressable market and support our long term growth and profit objectives. As the gaming consumer and industry evolve, we see an opportunity to expand our addressable market beyond our historical predominant focus on the console video game market, with a comprehensive suite of product offerings and new services across all categories for games and entertainment. And simply put, we're making it easier for consumers to find what they need at GameStop in an intuitive, relevant and frictionless shopping experience, all while taking a leadership role across the game and entertainment categories. Economically, this means adding incremental purchase occasions with higher margin lines of business and therefore capturing greater share of wallet. Let me turn to a review of the 3rd fiscal quarter. As George mentioned, our 3rd quarter sales performance was as expected as we transitioned through the final quarter of the Generation 8 console video game cycle, which included the shift of many software titles into the Q4 of this year and even into 2021. Further, we realized some top line softness in October as COVID-nineteen case spikes drove retail consumer mobility down. Our consolidated global sales for the Q3 was $1,000,000,000 or 30.2% below the Q3 of 2019. The decline was the combination of a negative 24.6 percent comparable store sales, the impact of both store closures and lower retail customer mobility through most of our operating countries and the impact of operating 607 fewer stores as part of our strategy to exit unprofitable businesses and optimize our store fleet through de densification. We continue to see strong sales and profit transfer rates from that de densification strategy. Geographically, our Australia and New Zealand business unit continue to perform very well relative to other regions, delivering a slight increase in sales for the quarter. It is important to note the performance in this region is driven by very little reduction in store operating days as the COVID related retail operating mandates have generally not required full closure or limited access, except for short periods of time. In terms of category performance, hardware and accessories declined 24% for the quarter, an expected slight deceleration from the Q2, largely reflected of a lack of hardware product in the marketplace ahead of the launch of the new consoles, much of which was pulled forward into the Q2. Despite this, Nintendo Switch continued to perform extremely well, increasing significantly compared to last year, and we continue to leverage our pre owned inventory to drive sales. Software was down 39% for the quarter versus 2019, a deceleration from the Q2 and was driven by the lack of title launches, most of which shifted later into the Q4 and into 2021. Notably, Call of Duty launched in the Q3 of last year compared to the Q4 of this year. Our collectibles business was down 9% for the quarter, which represents a significant improvement sequentially from the 2nd quarter performance as we realized the benefit of store traffic as stores began reopening during the quarter after being closed during the Q2. From a product margin standpoint, overall gross margins declined as the increase in the mix of higher margin collectibles sales was more than offset by the mix of lower margin hardware sales and an increase in industry wide freight costs and credit card processing fees driven by our higher penetration of e commerce sales. Our overall global gross margins were 27.5 percent, down 320 basis points from our more software led 30.7% in the fiscal Q3 last year. Now turning to our expenses and expense management objectives. Our reported SG and A expenses were $360,000,000 reflecting a decline of approximately $115,000,000 or 24% versus the reported SG and A in the Q3 last year. The total year to date SG and A cost reductions reached over $315,000,000 at the end of the 3rd quarter ahead of our expectations. Importantly, we continue to expect about 2 thirds of these reductions to be permanent, reflecting our ongoing efforts to aggressively rationalize the overall cost structure of our business. While we expect some of these variable costs to come back in future quarters as we return to more normalized operations of our stores and distribution centers, we are also steadfastly focused on further operational efficiencies to create additional permanent expense reductions in the future. To this end, we have more than doubled the original annual cost reductions we expected as a result of these actions we took as part of the reboot initiative, which began in 2019. We reported an operating loss of $63,000,000 compared to an operating loss of $45,600,000 in the prior year Q3. Income tax in the Q3 was a benefit of $53,900,000 driven by a change in the tax status of certain foreign entities that we have elected and the impact of the CARES Act, which allowed for a 5 year carryback period for certain current year tax losses. This tax benefit compares to an income tax expense $31,600,000 in the prior year Q3. Our effective tax rate for the quarter was 74.1%. On a reported basis, our net loss was $18,800,000 or a loss of $0.29 per diluted share compared to a net loss of $83,400,000 or loss per diluted share of $1.02 in the prior year Q3. Adjusted net loss excluding the gain on sale of assets related to the sale leaseback transactions was $34,400,000 or a loss of 0.5 $3 per diluted share compared to adjusted net loss of $40,200,000 or $0.49 per diluted share in the fiscal 2019 Q3. During the Q3, we continue to focus on optimizing our global store fleet and strategically de densifying certain markets. For the quarter, we closed a net total of 74 stores, bringing our total to 4 61 closures year to date. At the end of the quarter, we operated with 5,048 stores or 607 fewer compared to the end of the Q3 last year. Given the strong sales and profit transfer rates we continue to experience, we are on track to close nearly 700 stores in total this fiscal year and over 1,000 stores worldwide since we began this part of our strategy in 2019. Importantly, we are completing these closures generally with little to no capital outlay to do so. Now turning to our balance sheet, which continues to be an area of focus for the team. At the end of the fiscal Q3, we had total cash and restricted cash of $602,600,000 almost $300,000,000 higher than the end of the Q3 last year, reflecting our continued efforts to optimize working capital. Additionally, during the quarter, we completed the sale leaseback transactions for the remaining 2 office buildings being offered, contributing $43,700,000 toward total liquidity. Accounts payable at the quarter end were $440,200,000 down from $709,900,000 at the end of the Q3 last year, reflecting a 38% reduction, which is directly related to our ability to leverage a flexible supply chain and improve our inventory management. We ended the Q3 with total inventory of $861,000,000 compared to $1,286,700,000 in the prior year period, a reduction of 33%. Inventory efficiency in the 3rd quarter continued to improve as we realized a trailing 12 months inventory turn of 4.7 times from 4.1 times this time last year. During the Q3, we reduced outstanding borrowings under the asset based revolving credit facility by about $10,000,000 down to $25,000,000 outstanding. At the end of the 3rd quarter, we had 200 and $69,500,000 of short term debt and $216,000,000 of long term debt on the balance sheet. Subsequent to the quarter end, we announced the voluntary early redemption of $125,000,000 in principal amount of our 6.75 percent senior notes due 2021. The redemption will take place on December 11, 2020 and covers approximately 63% of the outstanding 'twenty one notes. The voluntary early redemption is consistent with our actions to strengthen and enhance our balance sheet, improve our debt profile and optimize our capital structure. In the Q3, we had $15,100,000 of capital expenditures and we continue to focus our capital spending on near term high value strategic projects and mandatory maintenance and still anticipate that we'll invest approximately $60,000,000 to $65,000,000 in CapEx for the year, some of which is offset by our various vendor support programs. Separately, today we also filed a shelf registration statement and established a related optional at the market program to offer and sell up to $100,000,000 of additional common stock. As I noted several times this year, we are extremely pleased with the results we have achieved to strengthen our balance sheet and advance our strategic objectives and believe we have more than sufficient liquidity and balance sheet strength to continue to execute on these endeavors as well as navigate through any potential unknown or extended pandemic effects. As such, the timing and amount of sales of shares under the program, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares and other factors we may determine. However, as a pragmatic matter, initiating this program provides us with the maximum flexibility and optionality to further bolster our balance sheet and liquidity position and increased flexibility gives us the ability to leverage opportunities to accelerate our transformational strategies such as increasing the speed at which we elevate and expand our omni channel strategy, while further ensuring minimal disruption from any potential further pandemic impacts around the world. Before moving to our Q4 outlook, I want to spend a few minutes highlighting the initial results of the console launches that occurred in November. By all accounts, these consoles are experiencing unprecedented demand and we continue to work with the suppliers to meet that demand. Importantly, we continue to be able to achieve attachment rates for 1st party and third party software and accessories that are in most cases more than 2 times that of any other competitor, which is leading to us having opportunities to get additional allocations for these high demand consoles. Given the strength of our performance so far with the console launch, we expect strong sales growth and profitability in the 4th quarter, something we have not seen in quite a few quarters. As George mentioned, November comparable store sales increased to 16.5% despite the impact of store closures throughout most of Europe and part of Canada in November. In addition, our customers continue to respond favorably to our improved e commerce experience, including our new app and flexibility fulfillment and payment options provided within our elevated omni channel ecosystem. As a result, year over year e commerce sales grew 3.50 2% in November versus the same month last year. Despite the strong start to the Q4, given the uncertainty around the evolving impact of COVID-nineteen, we are continuing to suspend guidance. As we mentioned, we have seen varying levels of closures across our international operations, particularly in Europe and as things remain very fluid in the U. S, temporary store closures due to COVID-nineteen could be likely heading into the rest of December January. Keep in mind that the comparable store sales exclude the impact of permanent store closures and locations that closed 14 contiguous days or more due to the pandemic. Before I conclude, I wanted to elaborate a little further on our real estate strategy and efforts to optimize our fleet, especially de densifying over stored markets and how we're approaching further actions. Looking at 2019 2020 combined, we will have closed over 1,000 stores over that timeframe with over 300 in 2019 and nearly 700 in 2020 and importantly have spent little to no capital to do so. With our investments in improving our omni channel capabilities including hiring almost 30 professionals with extensive digital experience, coupled with the impact that COVID-nineteen has had on our customers' desire to experience GameStop across our digital platforms, we see an opportunity to further optimize a fleet in the coming year or 2. These efforts come with EBITDA improvement and we have had a very flexible store base in terms of lease expirations. And that will enable us to close stores at very little cost to the business. We will update you further on these objectives during our Q4 fiscal year end earnings conference call. In summary, we're off to a great start for holiday and our associates are energized by the buzz and excitement generated by the console launches. We have long said that the newness in consoles and software drive our business and we see that playing out now. While we are now benefiting from a nice tailwind, we are equally focused on transforming our company for the future and believe we have the right initiatives in place to achieve this goal, reshaping GameStop for effective market reach and offering a broader array of products and services in the games and entertainment space. In the short term, we will remain intently focused on continuing to improve our financial architecture. But today, GameStop is a meaningfully more efficient, streamlined organization than it was 15 months ago due to all the hard work that our teams have done as part of stabilization and optimization components of our strategy. As a result, we believe we are poised to capitalize on significant profit flow through improvement as we experienced sales growth led by both the Generation 9 console launch and expected new software title slate as well as the expansion of the transformation phase of our strategy and many exciting category and product extensions and services we will bring into our ecosystem in 2021 and beyond. I will now turn the call over to the operator and we'll take any questions that you may have. Thank you. We will now be having our question and answer Our first question comes from Stephanie Wissink with Jefferies. Please proceed with your question. Hi, this is Ashley Helgans on for Steph Wissink. Thanks for taking our Zinc. On the SG and A reduction, you've been running about $100,000,000 a quarter. What should we expect for pacing by quarter going forward? And what are the remaining cost buckets to address? And then how just on your performance in the quarter, how did it benchmark to industry figures of 3rd party data sources like NPD? Thanks. Yes. Hi, Ashley. Thanks for the questions. With respect to SG and A, I mean, look, again, we're we continue to address, as you know, for several quarters now addressing SG and A in virtually every facet of the business. So, it's not going to it won't be that A lot of it is stores coming offline, a lot of it is, A lot of it is stores coming offline, a lot of it is productivity in our labor forces, both in the stores and the DCs, all not at all based on the history. And I'm sorry, second part of the question was? Yes, thank you. That was helpful. But the second part of the question was just on the performance in the quarter, how did you benchmark to industry figures like NPD? Yes, I don't I'm not exactly sure how to comment the benchmark point, but I mean, look, I think again, I think the quarter was in line with our expectations. And if you go back, just go back a year, I mean, when we first got here last summer and we set out on this journey, we said, look, these next 4 quarters will be representative of exactly what we just saw. And they met our expectations. And then more importantly, what happens at the end of a cycle as we then transition to the next one is, we're not competing on price at the end of a cycle. So again, it's a balance. But importantly, I think the 3rd quarter is behind us now. And I think the most important point here is that we are indexing very well as we launched into the November timeframe and the launch of these consoles. I think that's the critical message today is that we've made that transition and we're laser focused on moving forward. Yes, I think that's right. I mean, I think all I'd add is that we knew that we were at the end of we're going to experience some voids in hardware as we got to the end of the cycle without the prior generations in place in any kind of quantity. We had some software titles move from Q3 to Q4 and we are wave affected during this pandemic. So I mean very clearly as waves break out across the country, we feel the impact of that as shoppers become less and less comfortable, particularly going to a specialty store for a specialty purchase. Okay, great. Thank you. And if I could just squeeze in one more, ecom representing 18% of the mix in the quarter. How much of the online business is now fulfilled from stores? Yes, it's that's not a stat that we've actually supplied, but suffice it to say, it actually fluctuates. And this is important because it's based on what the consumer is demanding. And so, if it's a ship from store or a buy online pickup in store or a direct to consumer element or an absolute footfall into the box itself from a pure POS traffic standpoint, again, I think it's fluctuating. That's important. That's exactly what we mean by a frictionless, digitally led omni channel retailer is letting the consumer pick when they want the product and we deliver to it. Thank you. Our next question comes from Colin Sebastian with Robert W. Baird. Please proceed with your question. All right. Good afternoon. Thanks, guys. I mean, clearly, a lot of progress to be made with e commerce and with expense controls. So as it pertains to the transformation plan, I wonder if you could provide some context on how this differs from what was outlined in the letter to the Board, because at face value, it seems like there's a fair bit of overlap in terms of the shift to digital first and shrinking the store base? That's my first question. Yes. Look, I'll only comment on our progress as we see it reboot to date and where we are today. We look at the business and we feel quite good about the financial stability measures that have been taken place. Over the period of reboot, we've reduced long term debt by well over $500,000,000 We've returned $200,000,000 to shareholders through buybacks, which represent about 37% of the company. We ended the quarter with a $300,000,000 more cash than same quarter last year and that's been a trend. I mean that's something that's been pretty continuous throughout the reboot process. Just prior question, your SG and A run rate of reduction seems to be $100,000,000 a quarter. Yes, it does. I mean, that's very much an important part of getting where we needed to be. And then the progress that we've made on working capital has been tremendous. And fortunately, that began at the very beginning of reboot 15 months ago. And what that's done to allow us to navigate through this pandemic is I cannot overstate. So on the economic stability or financial stability front and good, we've made nice progress on digital for sure from an e commerce standpoint. We were behind. I mean, we were clearly behind in terms of digital penetration of sales. We were behind in terms of technology. We still are very candid about having work to do, but we've come a long, long way very, very quickly. So to be up 2 57% for Q3 to have penetration at that level and really spiking considerably higher than that during peak periods. To have made investments in our e commerce capability, both in terms of the platforms and human capital that's driving it. The capability expansion that we made, lease to own options, flexible payment terms, proprietary credit cards, all better alternatives for the customer on how to shop. And then just kind of looking ahead, while this generation of console launches is very, very important to us and it is and the demand is unprecedented and it clearly is, we're working to be defined not purely as a console gaming retailer, but as serving the entire gaming community on all the various verticals. So we're glad to see sales up 16.5% despite being closed on Thanksgiving Day and being very comfortable in that decision to close on Thanksgiving Day. We have a wide category expansion that both Jim and I mentioned during the course of our comments that are progressing well and then really good progress on the digital first omnichannel store fleet optimization work. So we look back, we feel pretty good about where we are and are poised for the next phase of work. Yes, I mean just to put a fine point on it, again the second pillar that we launched in reboot last year in the August September timeframe was to build a frictionless digital ecosystem. That's exactly what we've done. That is leading with technology, leading with a digital footprint that optimizes our e commerce evolution through the investments and advancement in technology, as well as how it balances with the right footprint of stores. We launched that when we got here and launched our reboot program. So I think that's the point George made. We did it and we've been making some real strides against it. Thanks. That's helpful. In the release, there's some commentary around providing growth in reference to 2021. So I just wanted to clarify if that's specifically referencing sales volumes next year or something else? Yes. It's absolutely referencing sales volumes next year. Okay. And I'd say 2 part response to that. First of all, we have growth initiatives in place. 2nd of all, the console launch is not a Q4 phenomenon, as you all know. I mean, I think there'll be great carry forward demand into the entirety of next year and beyond. Okay. And then lastly, do you have a target for the cash balance expected at the end of the fiscal year? Yes, we haven't put it out there, but I would just say consistent with the trajectory that we've been on. Okay. All right. Thanks guys. Yes. You bet. Thank you. Our next question comes from William Reuter with Bank of America. Please proceed with your question. Hi. I just had 2 quick ones. The first is, and I don't think the question was asked this way, in terms of the November performance, was it in line with your expectations? Yes, it certainly was in line with expectations. Again, we knowingly took a chunk out of by closing on Thanksgiving. I think it's fair to say that in this environment, the sales compression that you might sometimes see is not prevalent. So we knew that that was going to be an investment in our people and into safety and we don't second guess that for a moment. So yes, if you make that change, it is in line with our expectations. Okay. And then in terms of the new shelf, I saw that you mentioned general corporate purposes. Would you consider issuing stock to repay debt under that program? No, that's absolutely not the intent. The intent here is to simply optimize flexibility and optionality, period. There is a lot of unknowns going on in the marketplace with respect to this pandemic, ongoing flex of cases across the world, the impacts on our businesses, and we're not immune to that, right? And in that regard, look, we're going to continue to execute our strategies that have bolstered and strengthened our balance sheet. And you see all the work that we've done, including if we go back to even the long term debt levels in early 2019 till today, it's as of this coming Friday, we'll have reduced our long term debt by over 530,000,000 by March of 2021, that will be over 600,000,000 dollars In that same timeframe, that same roughly 24 month timeframe plus or minus, we also returned over $200,000,000 to shareholders. So I think, look, the goal is to continue to focus on running the business and optimizing where we run the business, but also be very pragmatic and make sure that we have capital flexibility with no intention to do anything other than maintain our flexibility. Hopefully that helps you. And in support of the debt is concerned, we don't need it. Yes, absolutely. We don't need it bottom line. And as I mentioned, Friday is the first voluntary redemption of $125,000,000 of the remaining March 21 notes. Great. I'll pass to others. Thanks so much. You bet. Thank you. Thank you. Our next question comes from Joe Feldman with Telsey Advisory Group. Please proceed with your question. Thanks. Hi, guys. With regard to the consoles, how did your allocation compare to prior cycles? I mean, presumably you sold every single unit that you got. Is there still a I assume there's still a very heavy backlog and what are your thoughts on allocation through the rest of the period? We know Sony has come out and said that they plan to produce more. So can you share any thoughts on that? Yes, I think the demand has been unbelievable, Joe, as you mentioned, and we don't see any end of that insight. So certainly, these are fabulous pieces of technology. The demand is terrific for it. Any allocation that we get and I think I've mentioned this on past calls, the answer is we always want more. I will say the competitive set has changed between console launches really with the evolution of direct to consumer from the OEMs themselves. So that tells you a bit about what the allocations look like versus last time around. But we're playing meaningfully, which was our objective and we're winning well. So I think one area in a point of differentiation for us and it's been part of our premise all along is we attach differently. So when you look at accessories, 1st party software, we attach differently and that's been recognized and we have seen some level of reward for that and we expect it to be a differentiating point for us going forward in terms of allocation. Thanks. That's helpful. And then just another question with regard to the cash balance. I mean, I know that some of it's restrictive, but you have $603,000,000 Presumably, you generated more in the Q4. Let's say, we're getting through this cycle with the pandemic. I understand the next couple of months are going to be rough. But I guess, how are you thinking about cash allocation or cash usage at this point? I know we've talked to people that are hoping you were going to buy back more stock in the coming year, so or return to that. So I guess I'm curious how we should think about that going forward. Yes. Thanks, Joe. The short answer is, again, nothing's off the table. I mean, our job is to find the optimum balance of capital allocation, which starts with ultimately the investment in the transformation of the business for future growth and profitability. That's the first point, and we'll continue to do that. And if it means accelerating those investments to bring that return in, in a more rapid fashion, we'll do that. It also is the fine balance of the capitalization of the business and ultimately what is the right level of debt. We think we're approaching that after we get done paying down the rest of these March 21s. And then outside of that, certainly always the consideration to return capital to shareholders as well as we've proven, like I said, last year in 2019, returned over $200,000,000 to shareholders. So I think every one of those is on the table. We are always looking to find the optimum balance of capital allocation. And just to kind of add the obvious, the underlying environment matters certainly. We don't know what few more months means right now. We're obviously encouraged by a vaccine just like all of you are. But we see more impact ahead and we don't know the exact timelines or protocols for that nor does anybody at this point. So we look at something that we have to be guarded about into the future is there is no particular end date in sight yet. This is something we're going to be dealing with for the indefinite future. Thank you. Our next question comes from Seth Sigman with Credit Suisse. Please proceed with your question. Hey, guys. Thanks for taking the question. I wanted to follow-up on the Q4 commentary and I just want to confirm the language here. So in the release, you talk about positive year over year sales growth. I just want to confirm, are you guiding to year over year profitability growth as well? Yes, we're not guiding to anything. The comment was specific to growth and profitability in the Q4. And just to be clear, again, we're not guiding to anything. Again, it's I think we've been pretty straightforward on that. And would you call it saying sales year over year is then I mean, you're saying sales year over year will grow and there's a comment about profitability. I'm just trying to confirm, are you saying year over year profit growth in addition to year over year sales growth? Yes, just notation was for the Q4. Yes, for the Q4, I'm asking. Yes, that's correct. Okay. So year over year profit growth. So then the related question is given the unfavorable mix of hardware, would you expect gross profit to be up as well? Obviously, you're going to have some mix impact here. Comps are going to be up, but you do have the negative mix. So gross profit up or is it really coming from the cost savings? A little bit of both, gross profit dollars because look, we're talking about volume rate, so you get a little bit of from the overall top line as a flow through, but then you also take advantage of the flow through to the bottom line as a result of your expense structure that's a lot optimized than it was last year. Okay, interesting. Okay, and then just a follow-up question on the market share question earlier. Your growth rates did seem to trail the industry per MPD. I'm just curious what would be causing that? Do you feel like e commerce, even though it's clearly progressing, do you feel like that's been one of the reasons for lagging or anything else that you would highlight? And then, of course, with all the initiatives, I'm curious, what do you think is going to be most incremental to regain share as you sort of look out over the next 12 months or so? Yes. Look, I think there are periods during the course of Q3, certainly periods during the pandemic where we certainly are aware of the fact that we lost some share. We've had closed stores. We've had a competitive situation where some of our competitors were open for business, we weren't. And you've got a very guarded shopping environment, obviously, as it applies to the brick and mortar aspect of our business, where there's a reluctance, there's a significant decrease in footfalls across retail in general, and we're not immune to that in any way, shape or manner. So I think you've got a prescribed shopping trip to GameStop to get gaming and you've got a general trip elsewhere for multiple purposes. I think that probably is factored in. On the flip side, when there's again, when there's newness in the marketplace, we excel. We tend to lead in market share for those software releases, those new game releases. So that is our strength. We actually believe that we're going to be in a position to begin to claw back market share going forward. As we cycle some of those closure periods, as we're able to get customers back in stores and leverage full omnichannel suite that we offer now. We've gained certainly through our increases on e commerce, but there still is significant impact on the brick and mortar aspect of the business right now and there will be for a while longer. Yes, I'd just add one comment on the market share piece. I mean, if you just look at the cyclicality back in the 2013, 2014 Gen 7, Gen 8 transition period, you'll saw that at the end of the cycle, we tend to lose a little bit of a couple of points of market share and at the beginning of the cycle, we gain those points of market share and the reason a huge reason for that and that is our expectation as we head forward. But a big reason for that is again the technical consultation of our expert gaming associates that are in the stores. And that's important with the advancements of the technology. Okay, thanks. Thanks and good luck. Yes, you bet. Thank you. Thank you. Our next question comes from Curtis Nagle with Bank of America. Please proceed with your question. Good evening. Thanks very much. Yes, I just wanted to continue digging in on the comment about the 16 point 5 comp in November. And just how to think about how the rest of the quarter plays out. November was obviously the quarter when PONSO is launched. I think at least it's going to be the only quarter where the industry will see material sell through due to the shortages. And in November, it likely brought a lot of traffic in the stores and the websites. So thinking about December January where you and your peers aren't likely going to have a ton of supply, at least I think, do you think you see a reversal in traffic? How do we think about constant positive? What's the setup for those 2 months where again you just don't have that traffic driver in any materiality? Yes, I think Kurt, first of all, let's take any potential effects of unknown components of the pandemic off the table, because look, we've seen it time and time again that it affects retail mobility. So let's just assume no one knows the impact of that, take it off the table. And the very simple fact outside of that is that, again, we're continuing to execute here in the Q4. This is not a couple of weeks in the month of November. So to be clear, that's not what this is and it's certainly not the Q4 either. As George said earlier, this is a multi year evolution here and this is just the beginning. Yes, look, there's going to be impact on December, as you know. I mean, you've likely heard about global supply chain issues on every call that you've been on and it certainly is a fact. It is a mitigating factor. But we have newness in December. We have a release coming up in 2 days called Cyberpunk 2,077, which is a big driver for us. And we certainly believe that there are other events that will drive traffic in the month of December that will continue this. The other thing is, again, I don't want to miss not playing to the fact that we have added so much customer flexibility, both in delivery options and payment options. These are all resonating incredibly consumers and giving us an advantage. So again, this is how you take advantage of a full omnichannel execution. So those are continuing to be part of our business as we move into December and beyond as well. Okay. And then just as a quick follow-up, any commentary on the used business? How did that trend go into 3Q? And I guess, how is the hardware portion of that segment doing, maybe seeing a little bit of boost near term, just given supply constraints across both next and current gen consoles and how is software performing as well? Yes. On the hardware side, for the Q3, as it should be expected, I mean, again, you've got lower supply elements. As we go forward and what I mean by is our ability to intake, when our stores are closed, we're not intaking pre owned hardware, right? I mean, that's just a natural equation. However, as we're navigating through this launch, a big part of that is our engagement with our customers with pre owned product. And so, we're positioning quite well. And I think what's different though, as we go forward this time around is that the OEMs are not making the prior gen product anymore. And that's critical because if you want a prior gen product, a lot of people do, there's demand in that marketplace. We are really your shop to go get that. Yes. I'd emphasize that last point. We're bullish on pre owned hardware for just that reason. And just again, go back in time a little bit, the intake issue is pretty self explanatory. We have pre sales and then we have launch events for new next generation consoles. You're not going to get my old console until I get my new console. So there's an inherent delay in that happening and then it does. And that's where we are right now is kind of in the fulfillment and high demand phase, working through those preorders, but really in a very constricted environment going forward. But we actually think that this can be a bit of a renaissance for pre owned gaming with absence of the older generation consoles out there and we have them and we can remanufacture them. There are no further questions at this time. I'd like to turn the floor back over to George Sherman for any closing remarks. Yes. Let me have Jim make one quick comment and then we'll close off the call. Yes. I just wanted to call your attention this quarter we added as we're making this transformation, we added some slides to the IR website. So I'll call your attention to those that continues to iterate and lay out for all of you this our journey. So please take a reference to those. George? Yes. Thanks to everyone. Wishing you a safe and happy holiday. It's obviously been a quite unusual year. Hope you have a great end to it. I want to kind of lay out our communications cadence going forward. We will provide you with holiday sales results in early January and then more details regarding our strategy and outlook at the ICR conference happening virtually in January and again following our Q4 and year end results. Thank you all very much. Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation and have a great day.