Good day. Welcome to GameStop Corp.'s third quarter 2017 earnings conference. A supplemental slide presentation is available at investor.gamestop.com. At the conclusion of the announcement, a question and answer session will be conducted electronically. To ask a question, please press star and then one to enter the queue. I'd like to remind you that this call is covered by the safe harbor disclosure contained by GameStop's public documents and is property of GameStop. It is not for rebroadcast or use by any other party without the prior written consent of GameStop. At this time, I'd like to turn the call over to Daniel DeMatteo, Executive Chairman and Interim CEO. Please go ahead, sir.
Good morning, or good afternoon, everyone. Thank you for joining our third quarter earnings call. Joining me on the call today are Rob Lloyd, our CFO, Tony Bartel, our COO, and members of our senior leadership team. I want to begin by updating everyone on the health of Paul Raines. For those of you who do not know, Paul had a recurrence of his previously disclosed medical issue and is seeking treatment. In his absence, the board of directors has asked me to assume the CEO role on an interim basis. Our thoughts and prayers are with Paul and his family during this time. From the entire GameStop family, we send him our best wishes and encouragement for a speedy recovery. For those of you who do not know me, I've been part of the GameStop leadership team for the last 25 years.
From 1996 until 2008, I served as CEO or COO, then as CEO until 2010. For the last seven years, I have served as Executive Chairman and have been involved in all aspects of the business. With all that said, let's start with an overview of our third quarter results, which were solid for our gaming and collectibles categories and more challenged for Tech Brands. Total sales were $1.99 billion, up 1.5% compared to LY. Comps were positive 1.9%. The growth was driven by the video game business as new hardware grew nearly 9% and new software increased more than 5%. Collectibles were also strong, up 27% over last year. Results in Tech Brands lagged our expectations due to the later than expected release of Apple's iPhone X. Bottom line, adjusted operating earnings were $80.8 million and adjusted earnings per share were $0.54.
Rob and Tony will share more details about our results. As we enter the important holiday quarter, there are three main points I would like to highlight. In our Tech Brands segment, specifically our Spring Mobile AT&T stores, we will focus on maximizing iPhone X sales, managing costs, and driving our other initiatives in order to maximize profitability. We will drive further growth in collectibles by capturing more market share by offering exclusive products and a greater assortment of items that connect with and appeal to our customers. We have momentum in the video game segment and are focused on maintaining it through strong execution in the stores, competitive promotions, and providing the best value for our customers. Overall, I am very encouraged heading into the holiday season.
We have a seasoned management team that has worked well together for a long time. Our entire team is focused on executing on our holiday sales plans across all of our businesses. I will now turn the call over to Rob.
Thanks, Dan. Good afternoon, everyone. Our third quarter results were driven by continued momentum from the Nintendo Switch and a stronger software lineup than last year. Our Switch allocation in Q3 led to an in-stock position by October. Demand remained strong, which drove our sales comps. We expect to see continued strength in demand for Switch through the holiday sales season. Some of the quarter's highlights include consolidated sales comps of 1.9%, including positive 0.6% in the U.S. and positive 4.6% internationally. The U.S. sales comps have exhibited three consecutive quarters of sequential improvement as our core video game business has improved and our collectibles business has grown. Total sales growth of 1.5%, including hardware sales up 8.8% and software sales up 5.4%. Sales were flat to last year in constant currency. Growth in our collectibles business is 26.5% to $138.4 million in sales.
The margin rate in collectibles was 38.1% compared to 36.3% a year ago. As we look in greater depth, we see the following. Nintendo Switch drove the 8.8% increase in hardware sales. GameStop has leading Switch hardware and software market share in the U.S. and in most of our international markets. New software sales met our expectations with growth of 5.4%. We gained 90 basis points of software share in the quarter compared to last year on the strength of titles like Destiny 2. Pre-owned sales declined 2.4% during the quarter, showing improvement from Q1 and Q2. The pre-owned margin was 43.6% as we sold through hardware associated with a successful trade-in promotion in Europe and other promotions in other markets. We expect these margin trends will continue through the rest of the year. Digital receipts increased 1.8%. GAAP digital revenues declined 16.8% due to the sale of Kongregate.
Factoring Kongregate out of the results from last year, digital receipts and GAAP digital revenues would have increased 8.3% and 11.9% respectively. Digital receipts growth was driven by a DLC sales increase of 29.5%, significantly ahead of growth in software sales. Tech Brands revenues declined 10.2% due to the later-than-expected launch of the iPhone X. We were able to take reservations for the X on October 27th and captured only two days of the X pre-launch in the quarter. The traffic comp was down 11.5%, while gross profit comp was down 16.3%, reflecting the later launch of the iPhone X. Tech Brands' gross margin was 72.8%, comparable to 73.8% in Q3 last year. However, Tech Brands' gross profit dollars were down $18.2 million or 11.4%. Tech Brands' operating earnings were $18 million compared to $23.5 million in Q3 of last year, again reflecting the split iPhone launch.
Tech Brands' adjusted operating earnings were $11.2 million. During the quarter, we reduced an accrual for contingent payment related to our purchase of AT&T stores last year by $5.7 million, reflecting actual performance. We had other adjustments netting to a credit of $1.1 million relating to lease obligation settlements and further rightsizing in the Tech Brands store portfolio. Consolidated gross margins were 34.7%, down from last year due to the mix of strong hardware and software growth and the decline in Tech Brands' gross profit dollars. SG&A was $565.1 million in the quarter. Adding back the $6.8 million in adjustments I described, SG&A was $571.9 million, up 0.8% from $567.1 million in Q3 of last year due to foreign currency. Consolidated operating earnings for the quarter were $87.6 million compared to $98.8 million last year and were impacted by declines in Tech Brands and in U.S. gross margins.
Adjusted operating earnings, excluding the $6.8 million in credits, was $80.8 million. Our effective tax rate on adjusted net income before tax basis was 17.6% due to timing and settlement of discrete tax items. The positive impact of these tax items was approximately $0.11 per share. GAAP earnings per share were $0.59. Adjusted earnings per share were $0.54. We ended the quarter with $454.7 million in cash compared to $356.1 million last year. Pursuant to our strategic plan, we reduced our video game store footprint by 18 on a net basis. We now have 3,869 video game stores in the U.S. and 1,985 internationally. We closed three net Tech Brands stores and now have 1,506. We opened three collectible stores in the quarter and now have 102 worldwide.
Moving to our outlook, hardware in Q4 will be driven by the Nintendo Switch and the Microsoft Xbox One X, which launched on the 7th and has been in high demand. We expect that NPD will report software growth in November as Call of Duty strengths can carry the difficult overlap from Pokémon. We expect that NPD would be negative for December as there are no notable title releases. Collectible sales remain on track to meet our full-year sales target of $650 million-$700 million. Tech Brands continues to face challenges as the iPhone X launched later than expected. Inventory shortages have impacted consumer traffic and demand, and it is not clear when supply will free up. We're revising our full-year Tech Brands earnings downward to be in the range of $75 million-$90 million, depending upon supply.
For the full year, same-store sales are trending to be positive in the low to mid-single digits. The full-year effective tax rate should be approximately 31%. We are maintaining our current EPS range of $3.10-$3.40 despite the third quarter results and the hardware-driven increase in comp sales guidance, as well as the revision of Tech Brands' profits and the fact that 60% of our earnings are still ahead of us. Before I turn the call over to Tony, I wanted to briefly touch on the amended credit facility we announced today. We are able to improve the terms, extend the maturity to November 2022, and increase the capacity to $420 million to allow for increased flexibility for future needs of the business. We appreciate the support of our banking partners and their belief in our long-term strategy. I will now turn it over to Tony for his comments.
Thanks, Rob. Good afternoon and happy early Thanksgiving to all of you. I would like to start by thanking our associates worldwide not only for the great service they have provided throughout the year, but in advance for their efforts to thrill our customers in this important holiday quarter. Quarter three was a strong quarter for the GameStop-branded stores as we gained software share and drove positive comps, which helped us offset a challenging quarter for our Technology Brands business. Technology Brands lagged last year's profits as we navigated a never-before-seen dual launch coupled with limited product availability. We are also seeing the continued effects of the compensation we have previously discussed. During Q3, our comp store traffic declined -11.5%, and our comp store gross profit declined -16.3%.
Based on the unusual characteristics of these iconic device launches, we did not see the immediate and consistent sales increase that we typically see early in the quarter. In fact, the delayed launch only allowed for two days of pre-order sales to be included in our Q3 results. Compared to last year in Q3, we missed 42 new device selling days in the quarter, resulting in an estimated loss of $16 million in operating profit during the period. Since the physical launch on November 3rd, the iPhone X has been extremely supply-constrained in all AT&T stores, more so than any prior iPhone launches and consistent with all carriers. In fact, there is very little physical inventory today throughout the retail ecosystem, not just in our stores. Every AT&T store has equal access to web and store purchases through AT&T's direct fulfill program, and we are fully participating in that program.
The lack of physical supply is limiting traffic flow. We believe that consumer awareness of the lack of inventory availability has shifted consumer shopping behavior to simply waiting for supply to purchase the device. On the GameStop-branded store side of the business, we again had positive comps and drove software market share. Strong growth in collectibles, digital sales, and Switch offset declines in other categories. In hardware, we continue to have market-leading share on Switch and the highest attach in the industry. Our expectation is that demand for Switch will continue to outpace supply for the remainder of the holiday season and for this to be one of the most sought-after gifts. We are working closely with Nintendo to ensure that we are best able to meet the holiday needs of our customers.
Continuing with hardware, the recently launched Xbox One X is off to a very strong start. We sold out our entire market-leading allocation in two days, and we are seeing the product sell as soon as it hits the shelves. Again, we do believe that demand will outstrip supply on this console, and we will continue to be the best, most informed place to purchase it. Moving to software, we gained market share again based on strong performance of key launches and strong performance of catalog titles. We continue to be the market leader on new title launches and were very pleased with the recent launch of Activision's Call of Duty: WWII, which was up 64% from the Infinite Warfare launch last year. Our digital receipts increased 1.8% as increased sales of downloadable console content offset a 6.5% decline due to the sale of our Kongregate unit.
Receipts for console downloadable content increased 29.5% during the quarter. Turning to our pre-owned business for the quarter, sales declined 2.4%. As in the previous quarter, the entire variance to new software sales growth for quarter three was driven by the Nintendo Switch. We continue to improve on our efforts to increase trades in our stores. We are now seeing trades pay for 16% of all product purchased in our stores. That is the highest participation that we have ever seen. This has resulted in a 2% increase in per store pre-owned software inventory, which puts us in a good position for the important holiday season. Collectibles continues to be a bright spot in our business. We grew collectibles 26.5% for the quarter while maintaining a 38.1% gross margin. We completed the expansion of 200 U.S. stores to one-half video games and one-half collectibles.
In addition, we completed the expansion of all U.S. stores to double the amount of square footage that is dedicated to collectibles. Our team has done a great job of securing new licenses and exclusive product not only for next year but also for the fourth quarter. For instance, we recently launched a first-to-market line of products from the Pokémon group. We are currently the only retailer in America that is featuring these in-demand iconic characters. We are also leveraging our ThinkGeek development arm, launching over 1,000 products this year that were designed or sourced by our ThinkGeek R&D team. This provides us with a powerful weapon to ensure that we have the best exclusive product with the best licenses in the industry.
We expect to see accelerated growth occurring in collectibles in the fourth quarter and are on track to reach our guidance of $650 million to $700 million of collectibles revenue this year. One additional area that has been a key growth area for us is our omni-channel segment. We grew omni-channel sales 38.6% in the quarter and 71.4% year to date. As you recall, we have a robust omni-channel system that combines ship to home from either our warehouses or our stores and buy online, pickup in store. We also have web in store that provides an endless aisle of both GameStop and ThinkGeek products. We recently added buy online, ship to store. All of this is wrapped in our PowerUp Rewards program to provide a consistent experience across all channels. Finally, we continue to engage customers through our PowerUp Rewards program.
We're able to understand and influence customer buying habits as well as communicate our unique value proposition, especially our Buy/Sell Trade program. Our PowerUp Rewards program continues to grow, with paid memberships up 25% over the prior year quarter. These customers shop with us nearly three and a half times more often than the average shopper. They participate more fully across our Buy/Sell Trade ecosystem. During the quarter, we rolled out a new super premium paid tier we call PowerUp Elite Pro. It's sold for $30 per year. We completed the rollout to all of our U.S. stores on October 18th and have already eclipsed over half a million members. Our Elite customers are truly the best of the best, projected to average 20 purchase occasions per year. The Elite tier offers additional incentives and opportunities for them to shop more often with GameStop.
Benefits for Elite have been expanded to support collectibles and tech trades, as well as offering free two-day shipping on online purchases. In addition, their core benefits on video game purchases and trades have also been elevated. In summary, we are poised for a strong fourth quarter on the GameStop branded store side of the business. Finally, we also believe that iPhone sales will resume a more normal cadence as consumers come in to experience this new innovative product. We are particularly excited that our opening on Thanksgiving this year, beginning at 4:00 P.M., will shift traffic and share in our direction. With that, I will now open the call up for questions.
Thank you. If you'd like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is *1 if you'd like to ask a question. With that, we'll take our first question from David Schick with Consumer Edge Research. Please go ahead.
Hi. Thanks, and have a happy holiday weekend coming up, and I guess a busy one. Could you talk about the pre-owned business? You gave some color on trends and on how that could work in the short term, but interested in how the setup with the new platforms feeds into pre-owned, how you think pre-owned could work on driving the business, but also the margins of that business over time, not just in the short term.
Thanks, David. I'll turn it over to Tony.
I'll take the first part and have Rob answer the margin question. Well, as I shared, David, we are doing a great job of bringing back trades, and most of those are on the new platforms. Like I shared, our trades currently pay for 16% of all the sales that take place in our stores. We are maximizing the inventory that we have, which is why we have positive growth in per store inventory going into the fourth quarter. We do see that we are actually accelerating knowledge of trades. Part of that is due to the fact that our PowerUp Rewards program continues to grow. As you get these new buyers into the program, especially into the Super Premium program, we find that these buyers are very active in the trading side and in buying the pre-owned inventory.
We anticipate that we will keep pace with physical video game sales in the long term. Rob, you want to address the margin question?
Sure. One of the things we saw in the quarter, and we've seen this a little bit this year, after we ran a very successful trade program in Europe in the spring with PS4s. We brought in a lot of PS4s. We had vendor support on that trade program. We liked the results of that. I think we're going to run that in a couple of markets over the course of the holiday. We anticipate that's part of why we said the rates would trend as they did in Q3. In terms of where they might go in the longer term, our focus is really on running programs like this that we think will drive gross profit dollars. Where they're successful in doing so, we can turn around and run them again. Where they don't work, obviously, we would discard them.
We'll be spending time in our 2018 planning here in the next three months, talking about what kind of programs and promotions we want to repeat next year, and we'll be better able to give guidance on the long-term, the rate trends in the category as said on our March call.
Very helpful. I'll just do a follow-up here on AT&T. Any color you can give on the relationship? I know you've worked hard as you started it and there were some tweaks. How that might evolve over time? Is it fair to assume that there was a change that was adverse to your economics? Is it fair to assume that that might normalize over time or even get changed to something that could be more favorable to your economics?
Sure. We have a great relationship with AT&T. We talk with them continually. I would say that the compensation programs are constantly in a state of flux. They're very interested in the success of all of their authorized retail and the authorized retailer channel. The compensation changes that they took in place reflected investments that they had made and growth areas that are important to them and important to us and differentiate us from the competition. We've pushed hard to be a good partner to drive the bundling strategy, which drives greater stickiness of the customer. We've worked hard on that, and they recognize that. I would say that AT&T is going to continue to be a good partner and make sure that they have a very financially sound authorized retail channel.
Great. Thank you so much.
Thank you, David.
good holiday and busy weekend.
Thank you.
Thank you.
Thank you. We'll take our next question from Colin Sebastian with Baird.
Thanks. I guess first off, just extending our wishes here to Paul for a speedy recovery. A couple of the game publishers have suggested they're seeing this fall a somewhat faster mix shift to full game downloads and realizing that's still early, I wonder on those recent releases, if you have a sense for what your market share is tracking towards on the titles where there is perhaps a higher digital mix, and whether you're seeing a normalization in the physical format after the initial sales window. I have a follow-up.
Okay, Colin. Thank you. Rob?
Yeah, I'll say, without divulging the specifics that the publishers tell us in confidence, I can say that we have seen some titles here in the fall that have had a higher digital download rate at launch than we had been seeing in the past. That's part of the migration that we've seen every year. We've talked about that looks to be about 500 basis points or so a year. Obviously, we'll need to wait until we get some data from NPD to know whether or not that's different. What we do know is that we've had strong success on those titles that have launched, there's a handful or less, in the last 18 months that have had a greater than 50% download rate at launch. Our share on those titles has been 30% plus on a physical and digital combined basis. We're pleased with that.
We see our share remaining strong and growing on the physical side of these titles when launched. We've seen our share on the full game downloads increasing as well, although it is not a material part of the market. We are trying to drive that. Overall, we believe we're very relevant in a combined physical and digital world that can be north of 50% digital on certain titles.
Colin, that then normalizes over time, to your point, because published numbers that we see are around 30% in the industry, which is about where we thought it would be at this point in the cycle. They do normalize over time. They tend to be higher during the launch periods. As Rob shared, the two fastest growing areas for us, remember that we did have 30% growth in our console digital category.
The two fastest growing categories for us are full game downloads and in-game content. That's obviously where the publishers are driving towards, and we're participating in that by providing discovery as well as affordability.
Thanks for that. I guess my second question is on the GameStop Plus store format. I think this is interesting because I believe it's roughly 50/50 games and collectibles. I am wondering what you're seeing from that format, whether you think there's an opportunity to expand that format to other geographies and across the store base. Thank you.
Okay. I'll ask Michael Mauler to answer that.
Yes, Colin. Internationally, about 25% of our stores now are 50/50. What we're seeing, we're still trying to get the right balance, and the stores are fairly flexible, so depending on time of year, that changes when you have new game launches, for example. What we're seeing is that despite less space devoted to video games and more to collectibles, we're actually seeing an increase in video game sales as well. A lot of that has to do with the new type of customer that those products bring into the GameStop ecosystem. Previously, maybe they didn't buy video games, but now they come in to buy collectibles, and if we can get them signed up into our loyalty program, which we're doing, we're able to market games to them as well later.
Those types of stores will continue to grow based on the results we're seeing.
Thank you.
Thanks, Colin.
Thank you.
Thank you. We'll now take our next question from Brian Nagel with Oppenheimer.
Good afternoon.
Good afternoon, Brian.
First of all, I'd like to extend my wishes for a speedy recovery to Paul and his family.
Okay. Thank you.
My first question. I've got a few questions here, so I'll just go through them one. If we look at in the quarter, the new software sales growth, so that definitely ticked, it flexed higher here. I guess it's been on a steady improvement the last couple of quarters. We saw it flex higher for the first time in a while. How do we think about the sustainability of that? As I think what's behind it, was it primarily driven by Switch software, or was it a broader swath of software titles? Again, just overall sustainability from your perspective on that.
Brian, I'll turn it over to Tony.
Yeah, Switch was definitely, Brian, a large part of it because that's all basically incremental, and it's been very strong for us. One thing as I shared, our catalog titles have also gotten stronger. We're competing better on the long tail than we have in the past. That's been working well. Those trade dollars that I mentioned earlier are coming in more aggressively, which is making it more affordable. As Mike shared, the collectible side of our business is bringing in a new customer, and we do think that that's been accretive to our software sales as well. All of those things are working, but the predominance has been through Switch, we are seeing some strong sales.
Clearly, what's taking place at this point is the strength of Call of Duty: WWII is so strong right now that that's what's driving the growth in November.
Got it. The second question I have on the quarter, just looking at the gross margin on the pre-owned side. That ticked down here in the quarter. Rob, you discussed this a bit. If I'm hearing you correctly, it sounded like it was a mix shift to more hardware there. If that's correct, I would assume that downshift in margins in the category should prove transitory. Is that correct?
Rob?
We really haven't disclosed much in the past, Brian, around what the composition of pre-owned is relative to hardware and software. We did run those programs with respect to the PS4 hardware that were very successful. It is fair to assume that hardware was a driver there. I'll point out, although we haven't disclosed the numbers around this either, the hardware margins on pre-owned are much closer to the software margins than you would see on the new side. I don't want investors and analysts to assume that there's a significant shift there from a higher margin to a lower margin category.
Got it. It's helpful.
Yeah.
The final question I have, just from a, I guess, a bigger picture perspective with regard to capital allocation. For some time now, you've been aggressive in buying back your stock and paying a dividend. How should we think about the priorities for excess capital going forward? Has there been a shift, and where does the dividend continue to rank there?
The dividend continues to be very important to us. In terms of what, if you look back a year ago, we did last year, was we returned cash to shareholders in the form of buyback following the holiday period. As we move through the holiday this year, we can continue to evaluate how best to allocate capital and what that means in terms of returning capital to shareholders. That's a regular and ongoing process for us.
Well, thank you very much.
Thanks, Brian.
Thank you. We'll now take our next question from Ben Schachter with Macquarie. Please go ahead.
Hey, guys. I also want to extend my best wishes to Paul. On the iPhone X, can you help us understand a bit more how it impacts the actual financial model directly, sort of excluding the traffic, which is going to be light. How do you guys think about the revenue recognition, gross margin, et cetera, on that? Then just following up on Brian's question on capital allocation. In the past, you've also talked about looking at potential acquisitions for the company. Just wondering, given how weak the stock has been recently, would that be off the table? Is it more of a focus on buying back stock or even possibly levering up the balance sheet to buy back stock? Given where the stock is, why shouldn't we expect to see more significant buybacks? Thanks.
Let me address the AT&T iPhone question first. We mentioned in the scripted remarks, both Tony and I, that we had two days worth of the pre-sales period on our result. What happens there is customers can come into the store, and they can place an order for an iPhone through AT&T's direct fulfillment program. With supply constrained, that's how we're honoring consumer purchases now. They basically get into that system and the phone gets delivered later. When we sign a customer up in that direct fulfillment program, we've completed our revenue recognition process. As a result, the two days that we did that in October went into our result. Every transaction that we do, signing someone up on direct fulfill in November goes into our results for Q4. That completes the revenue recognition.
On the capital allocation and M&A front, we had talked about in the past that our M&A activity was slower than it had been, not much activity this year. That's due to a couple of reasons. One, the changes that are going on the AT&T side of the business have impacted the profitability of not only our Tech Brands business, but the authorized retailer base. Our goal would be, one, to make sure that we're maximizing our profitability in the stores we own. At the same time, as that change in compensation and as these iPhone results work themselves through the rest of the authorized retailer base, it gives us an opportunity to pause and let the valuations inside that market adjust themselves. We don't want to be buying things right now based upon past EBITDA and overpay.
That activity is on a bit of a pause. We've also talked about from a broader M&A perspective, the challenges with respect to our trading value in terms of multiples of EBITDA, make it difficult for us to find things that we believe would add value to the company at a price that makes sense to shareholders. You haven't seen much from us on the M&A front this year. In terms of what that means for share buybacks and other avenues of capital allocation, as I mentioned, we'll be evaluating that as we move through the fourth quarter and see how the holiday develops similar to what we did last year.
I will say, though, that in the current environment for retailers, I think it's fair to say that adding debt to the company in order to buy back shares would be an unlikely avenue for us to take.
Just one quick follow-up. You mentioned, I think it was 64% was up year-over-year on Call of Duty versus Infinite Warfare. How would you think that is going to shake out for the full year? Is that on a dollar basis or a unit basis? Thanks.
Ben, this is Tony. That was on a dollar basis. I would say that right now during the launch, it's been high. I don't think it's going to necessarily stay at that level for the full year, but we'll see what takes place during the holiday period. It did get off to a very strong launch, especially at GameStop.
Thank you.
Thank you, Ben.
Thank you. Once again, as a reminder, that is star one if you'd like to ask a question. We'll hear now from Curtis Nagle with Bank of America Merrill Lynch.
Great. Thanks very much for taking the questions. Just a quick one on accessories. It looked a little weak on a year-over-year basis relative to the prior quarters. Just curious what drove that, particularly when it sounds like you're still doing pretty good attach rates for the Switch.
Yeah. It's the overlap of VR from Sony from October of last year. The attach rates within Switch continue to be strong, it's really that VR overlap.
Got it. Just on inventory, I guess how much of elevated levels right now are due to used and where do you expect that to be by year-end?
If you look at the inventory year-over-year, the used is up a little bit. It's a minor factor. Hardware is up as we prepare for the holiday and got allocations on the Switch, as I mentioned. Our collectibles business is up given the growth that we've had there of over 26% in the quarter.
Got it. If I may put in one more. I know this is somewhat speculative, but if the AT&T and Time Warner merger don't ultimately go through, I guess how would you think that's going to impact forward growth of the Tech Brands, given that the type of products that Time Warner sells and may be incorporated into AT&T's digital products, you're compensated on more of that type of revenue stream. How are you thinking about that?
We'll wait until that deal is consummated before we work with AT&T to figure out how we're going to be compensated for those products. I can tell you at this point, Curtis, we have nothing in 2018. As we work out our 2018, we have nothing in there for material for that acquisition in our Tech Brands stores. We'll wait and see how that acquisition unfolds.
Okay. Thanks very much, good luck on the holidays.
Thanks, Curtis.
Thank you.
Thank you. We'll now take our next question from Joseph Feldman with Telsey Advisory Group.
Yeah. Hi, guys. Good afternoon. Thanks for taking my questions.
Yes.
Wanted to ask, going back to the Tech Brands for a minute. When you look at the downward revision that you guys have described, how much of that, because of the delay in the iPhone X versus changes in the comp structure, if you can separate the two?
Pass it to Tony.
Well, the changes that we just passed through this quarter represent the delay of the iPhone and the inventory visibility that we have going forward. We had obviously baked in the compensation change in previous quarters. The revision that you see in this quarter is purely due to the 42 days and the $16 million impact in Q3, and then the impact of the limited supply that we have or that we have visibility to today in that business.
Got it. Thank you for clarifying. With regard to the software or the pre-owned side of the business, what is the typical lag like? You have a Nintendo Switch, just comes out, it's pretty new. It launched in, what was it? In March, I guess. This will be the first holiday season, so presumably there's really very little, if any, pre-owned portion of that business. What's the normal cycle of that? When does that come back into play? Is that early next year? Is it a year from now? How should we think about that? Same with Xbox One X, although I think Switch is really the different platform.
What we see there is actually an interesting dynamic relative to where we were four years ago. On the Switch, we would expect that that would be a more meaningful contributor to our pre-owned business, probably in the latter half of 2018. Just recognizing that part of that dynamic is that it's the new console on the block. People that are buying the Switch are playing those franchise titles that Nintendo has released, "Zelda," "Mario Kart," "Super Mario Bros." that keep them engaged with that platform. Contrast, if you look back four years ago, it did not take as long for the PlayStation 4 and the Xbox One to work their way into our pre-owned business because you had those two consoles kind of competing with each other.
You had that consumer that would try one, decide they wanted to go with the other, trade it in and sort of switch back and forth. The dynamic is just different this time. Anything to add, Tony?
Generally, about 180 days is typically what we see of games and consoles coming in on average. That's been kind of the last 10-year average. Like Rob said, the Switch console may elongate a bit.
Okay. Got you. One last thing. With regard to collectibles, are you guys seeing anything from a competitive standpoint, you guys seem to be the dominant emerging, or not emerging, but a dominant player in the space right now, and as kind of a go-to source. I'm just curious because we've definitely seen some of the mass merchants trying to beef up their selection of some of the product, not to the extent that you have. We've even seen, in some malls, some little specialty guys popping up selling collectibles. I'm just wondering what you guys are seeing more from an industry level perspective.
Ask Michael Hogan to take that.
Sure. Thanks for that question. What we're seeing, first off, is just tremendous growth in the category as a whole. One of the things that we've talked about in the past is that this category is already as big or almost as big as physical video games, and our share of this category is far less than it is in video games. The point there is that the category's growing so fast, there's lots of room here. We're actually excited to see a lot of activity in the category because that's driving the total growth and awareness in a lot of consumers in. In terms of our strategy, I think Tony mentioned this earlier, is really to focus on those unique things that we can do well.
What we're seeing is that with the power of the GameStop brand, with the power of our store footprint and so on, we're able to go get the relationships, the licenses, et cetera. Current Pokémon Center would be a great example of that really make us unique in the marketplace. We see a lot of people jumping into the category. You can certainly buy collectibles products at mass merchandisers, but we're excited about the fact that what you're finding at GameStop is going to be really unique, and we have the ability there to really bundle products and message externally in a way that we're seeing to drive new customers and new traffic into our stores.
Got it. That's helpful. Thank you very much. Good luck this quarter, guys.
Okay. Thank you.
Thank you.
Okay. Thank you very much for attending. I'm sorry.
That concludes the question and answer part of today's call. I would like to turn the call back over to Dan for closing comments.
Okay, great. Thank you very much for attending this afternoon. Happy Thanksgiving to all and to all your families. Thank you very much.
Thank you. That does conclude today's conference. Thank you all for your participation.