Earnings Call: Q3 2017

Nov 21, 2017

Good day, and welcome to GameStop Corp's Third Quarter 20 17 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. I'd like to remind you that this call is covered by the Safe Harbor disclosure contained by GameStop's public documents and its 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 Dan Matio, Executive Chairman and Interim CEO. Please go ahead, sir. Good morning, every or good afternoon, everyone. Thank you for joining our 3rd 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 Reins. 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 2,008, I served as CEO or COO, then as CEO until 2010. For the last 7 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 Q3 results, which were solid for our gaming and collectibles categories and more challenged for technology brands. Total sales were $1,990,000,000 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 technology brands lagged our expectations due to the later than expected release of Apple's iPhone X. Bottom line, adjusted operating earnings were $80,800,000 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 3 main points I would like to highlight. In our Technology Brands segment, specifically our Spring Mobile AT and 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 and 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 Rod. Thanks, Dan. Good afternoon, everyone. Our Q3 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 remains strong, which drove our sales comps and 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 point 9%, including positive 0.6% in the U. S. And positive 4.6% internationally. The U. S. Sales comps have exhibited 3 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 percent to 138,400,000 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 US 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 Northern Ireland. We expect these margin trends will continue through the rest of the year. Digital receipts increased 1.8% and GAAP digital revenues declined 16.8% due to the sale of congregate. Factoring Compute 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 10. We were able to take reservations for the 10 on October 27 and captured only 2 days of the 10 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 10. Tech Brands gross margin was 72.8%, comparable to 73.8% in Q3 last year. However, Tech Brands gross profit dollars were down $18,200,000 or 11.4%. Tech Brands operating earnings were $18,000,000 compared to $23,500,000 in Q3 of last year, again reflecting the split iPhone launch. Tech Brands adjusted operating earnings were $11,200,000 During the quarter, we reduced an accrual for contingent payment related to our purchase of AT and T stores last year by $5,700,000 reflecting actual performance. And we had other adjustments netting to a credit of $1,100,000 relating to lease obligation settlement and further rightsizing of 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 and A was $565,100,000 in the quarter. Adding back the $6,800,000 in adjustments I described, SG and A was $571,900,000 dollars up 0.8 percent from $567,100,000 in Q3 of last year due to foreign currency. Consolidated operating earnings for the quarter were $87,600,000 compared to $98,800,000 last year and were impacted by declines in Tech Brands and in U. S. Gross margins. Adjusted operating earnings, excluding the $6,800,000 in credit was $80,800,000 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 $454,700,000 in cash compared to $356,100,000 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 1985 internationally. We closed 3 Net Tech Brands stores and now have 1506. We opened 3 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 1X, which launched on 7th and has been in high demand. We expect that NPD will report software growth report software growth in November as Call of Duty strength can carry the difficult overlap from Pokemon. 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 $650,000,000 to $700,000,000 Tech brand continues to face challenges as the iPhone 10 launched later than expected. Inventory shortages have impacted consumer to be in the range of $75,000,000 to $90,000,000 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 to $3.40 despite the 3rd 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 $420,000,000 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 3 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 negative 11.5% and our comp store gross profit declined negative 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 2 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 $16,000,000 in operating profit during the period. Since the physical launch on November 3, the iPhone X has been extremely supply constrained in all AT and 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 and T store has equal access to web and store purchases through AT and T's Direct Fulfill program and we are fully participating in that program. However, 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 outpace 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 2 days and we are seeing them 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 we're very pleased with the recent launch of Activision's Call of Duty World War II, 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 0.5% 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 3 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 and 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 percent for the quarter while maintaining a 38.1% gross margin. We completed the expansion of 200 U. S. Stores to 1 half video games and 1 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 Q4. For instance, we recently launched a first to market line of products from the Pokemon group. So we are currently the only retailer in America that is featuring these in demand designed or sourced by our ThinkGeek R and D team. Designed or sourced by our ThinkGeek R and 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 4th quarter and are on track to reach our guidance of $650,000,000 to $700,000,000 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 percent year to date. As you recall, we have a robust omnichannel system that combines ship to home from either our warehouses or our stores and buy online, pick up in store. We also have web and store that provides an endless aisle both GameStop and ThinkGeek products and we recently added buy online, ship to store. All of this is wrapped in our PowerUp Awards program to provide a consistent experience across all channels. Finally, we continue to engage customers through our PowerUp Rewards program. We are 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 3.5x more often than the average shopper and 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 and it's sold for $30 per year. We completed the rollout to all of our U. S. Stores on October 18 and have already eclipsed over 500,000 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 2 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 Q4 on the GameStop branded store side of the business. We also believe that iPhone sales will resume a more normal cadence as consumers come in to experience this new innovative product. And finally, we are particularly excited that our opening on thanks giving this year beginning at 4 pm will shift traffic and share in our direction. With that, I will now open the call 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 with 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 the 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. Yes. I'll take the first part and have Rob answer the margin question. Well, as I shared, David, are doing a great job of bringing back trades and most of those are on the new platforms. Like I shared, we're up our trades currently pay for 16% of all the sales that take place in our stores. So we are maximizing the inventory that we have which is why we have positive growth in per store inventory going into the Q4. So 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. And as you get these accelerated or 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 then buying the pre owned inventory. So we 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 like the results of that. I think we're going to run that in a couple of markets over the course of the holiday. So we anticipate that's why 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. So we'll be spending time in our 2018 planning here in the next 3 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, I'd say on our March call. Very helpful. I'll just do a follow-up here on AT and 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'll be some 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 and T and we talk with them continually. So I would say that the compensation programs are constantly in a state of flux and they're very interested in the success of all of their authorized retail and the authorized retailer channel. So, the compensation changes that they took in place reflected investments that they had made and growth areas that they that are important to them and important to us and differentiate us from the competition. And we've pushed hard to be a good partner to drive the bundling strategy, which drives greater stickiness of the customer. And we worked hard on that and they recognize that. And so, I would say that AT and 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. Have a good holiday and busy week. Thank you. Thank you. Thank you. We'll take our next question from Colin Sebastian with Baird. Thanks. And I guess first off, just extending our wishes here to Paul for a speedy recovery. First, 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? And I have a follow-up. Okay, Colin. Thank you. Rob? Yes, 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, 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 some 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. And our share on those titles has been 30% plus on a physical and digital combined basis. So 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. So overall, we believe we're very relevant in a combined physical and digital world that can be north of 50% digital on certain titles. And Collin, 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. And so they do normalize over time. They tend to be higher during the launch periods. And as Rob shared, the 2 fastest growing areas for us and remember that we did have 30% growth in our console digital category. The 2 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. And I guess my second question is on the GameStop Plus store format. I think this is interesting because I believe it's roughly half and half games and collectibles. 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 Mike Mahler to answer that. Yes, Collin. So internationally about 25% of our stores now are fifty-fifty. And what we're seeing, we're still trying to get the right balance and the stores are fairly flexible. So depending on time of the year that changes when you have new game launches, But what we're seeing is that despite a less space devoted to video games and more to collectibles, we're actually seeing an increase in video game sales well. And a lot of that has to do with the new type of customer that those products bring into the GameStop ecosystem. And so previously maybe they didn't buy video games, but now they come in to buy a collectible. 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. So that so those types of stores will continue to grow based on the results we're seeing. Okay. Thank you. Thanks, Colin. Thank you. We'll now take our next question from Brian Nagel with Oppenheimer. First of all, I'd like to extend my wishes for speedy recovery to Paul and his family. Okay. Thank you. My first question is, I've got a few questions here, so I'll just go through them 1. If we look at in the quarter, the new software sales growth, so that definitely ticked, inflected higher here. I guess it's been on a steady improvement last couple of quarters. We saw it inflect higher over the first 7 in a while. How do we think about the sustainability of that? And as I think what's behind it, is it was it primarily driven by switch software or was it a broader swath of software titles? And again, is your overall sustainability from your perspective on that? Brian, I'll turn it over to Tony. Yes. Switch was definitely, Brian, a large part of it because that's been a it's all basically titles have also gotten stronger. So we're competing better on the long titles have also gotten stronger. So we're competing better on the long tail than we have in the past. And that's been working well. And those trade dollars that I mentioned earlier are coming in more aggressively, which is making it more affordable. And 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. So all of those things are working, but the predominance has been through Switch, but then we are seeing some strong sales. Now clearly, what's taking place at this point is the strength of Call of Duty: World War 2 is so strong right now that that's what's driving the growth in November. Got it. And then the second question I have on the quarter, just looking at the gross margin on the pre owned side, so that ticked down here in the quarter. Rob, you discussed this a bit. If I'm hearing you correctly, it sounds like it was a mix shift to more hardware there. And if that's correct, I would assume that 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. But we did run those programs with respect to the PS4 hardware that were very successful. And so it is fair to assume that hardware was a driver there. But 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. So 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. Then 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 the dividends. How should we think about the priorities for excess capital going forward? Has there been a shift? And where is the dividend pay 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 buybacks following the holiday period. And so 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 10, 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? But how do you guys think about the revenue recognition, gross margin, etcetera on that? And 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? I mean, given where the stock is, why shouldn't we expect to see more significant buybacks? Thanks. So let me address the AT and T iPhone question first. We mentioned in the scripted remarks, Tony and I, that we had 2 days worth of the pre sales period on our results. So what happens there is customers can come into the store and they can place an order for an iPhone through AT and 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. And as a result, the 2 days that we did that in October went into our results. Every transaction that we do signing someone up on the Wrexville sale in November goes into our results for Q4. So that completes the revenue recognition. On the capital allocation and M and A front, we had talked about in the past that our M and A activity was slower than it had been, much activity this year. And that's due to a couple of reasons. One, the changes that are going on, on the AT and T side of the business have impact the profitability of not only our Tech Brands business, but the authorized retailer base. And our goal would be 1 to make sure that we're maximizing our profitability in the stores we own. But at the same time, as that change in compensation and as these iPhone results work themselves through the rest of the and let the valuations inside that market, 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. So that activity is on a bit of a pause. We've also talked about from a broader M and 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. So you haven't seen much from us on the M and 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 Q4 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. And 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 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. So it did get off to a very, very strong launch, especially at GameStop. Thank you, Ben. Thank you. We'll hear now from Curtis Nagle with Bank of America Merrill Lynch. Great. Thanks very much for taking the questions. So a quick one on accessories. It looked a little weak on a year over year basis relative to prior quarters. Just curious what drove that particularly when it sounds like you're still attaching doing pretty good attach rate for the switch? Yes, that's it's the overlap of VOR from Sony from October of last year. It's really the attach rates within Switch are continued to be strong. So it's really that VR overlap. Got it. And then just on inventory, I guess how much of elevated levels right now are due to used and where do you expect that 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. And then our collectibles business is up given the growth we've had there of over 26% in the quarter. Got it. And if I may put in one more. So I know this is somewhat speculative, but if the AT and T and Time Warner merger don't ultimately go through, I 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 maybe incorporated into AT and T's digital products. You're compensated on more of that revenue stream. So how are you thinking about that? We'll wait until that deal is consummated before we work with AT and T to figure out how we're going to be compensated for those products. But I can tell you at this point, Curtis, we have nothing in 2018 as we work out our 2018, we have nothing in there material for that acquisition in our Tech brand stores. So we'll wait and see how that acquisition unfolds. Okay. Thanks very much and good luck on holidays. Thanks, Curtis. Thank you. Thank you. We'll now take our next question from Joseph Feldman with DelSuite Capital Markets. Yes. Hi, guys. Good afternoon. Thanks for taking my questions. So I wanted to ask, going back to the Tech brands for a minute. When you look at the downward revision that we you guys have described, how much is that because of the delay in the iPhone X versus changes in the comp structure, if you can separate the 2? I'll pass it to Tony. Yes. 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. So the revision that you see in this quarter is purely due to the 42 days and the $60,000,000 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. And then with regard to the software or the pre owned side of the business, what is the typical lag like? You have Nintendo Switch just comes out, it's pretty new, it launched in what it was in March, I guess. This will be the 1st holiday season. So presumably, there's really very little, if any, pre owned portion of that business. Like what's the normal cycle of that? Like 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 kind of Xbox One X, although I think Switch is really the different platform. Yes. So what we see there is actually an interesting dynamic relative to where we were 4 years ago. So 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 twenty eighteen. Just recognizing that part of that dynamic is that it's the new console on the block. So people that are buying the Switch are playing those franchise titles that Nintendo has released, Zelda, Mario Kart, Super Mario Kart, that keep them engaged with that platform. In contrast, if you look back 4 years ago, it did not take as long for the PlayStation 4 and the Xbox 1 to work their way into our pre owned business because you had those 2 consoles kind of competing with each other. And so you had that consumer that would try 1, decide they wanted to go with the other, trade it in and sort of switch. So the dynamics is just different this time. Anything you would add? 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. And then one last thing. With regard to collectibles, are you guys seeing anything from a competitive standpoint? I mean, you guys seem to be the dominant emerging or not emerging, but dominant player in the space right now and as kind of a go to source. And yet, I'm just curious because like 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. And 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? I'll ask Mike 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. And the point there is that the category is 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 and a lot of consumers in. In terms of our strategy and 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, etcetera. Current Pokemon Center would be a great example of that. They really make us unique in the marketplace. So 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 in GameStop is going to be really unique and we have the ability there to really bundle product 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. That concludes the question and answer part of today's call. I'd like to turn the call back over to Dan for closing comments. 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.