13 weeks ended October 29, 2016
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 1,195.2
$ 86.8
$ 139.4
$ 321.5
$ 216.3
$ 1,959.2
Operating earnings 59.1
3.9
3.5
8.8
23.5
98.8
Interest expense (14.8 )
Earnings before income taxes $ 84.0

39 weeks ended October 28, 2017
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 3,545.3
$ 256.9
$ 438.2
$ 897.8
$ 583.9
$ 5,722.1
Operating earnings (loss) 175.3
5.1
10.2
(2.4 ) 44.1
232.3
Interest income 0.4
Interest expense (42.6 )
Earnings before income taxes $ 190.1

39 weeks ended October 29, 2016
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 3,586.5
$ 231.2
$ 376.6
$ 810.2
$ 558.0
$ 5,562.5
Operating earnings (loss) 204.7
8.9
7.0
(5.7 ) 56.2
271.1
Interest income 0.5
Interest expense (39.7 )
Earnings before income taxes $ 231.9



~~ITEM 2.~~	ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our ~~unaudited~~ condensed consolidated financial statements, including the notes ~~thereto.~~thereto set forth in Part I, Item 1 of this Form 10-Q. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. ~~See~~These statements are only predictions based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause our ~~Annual Report~~or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements included in this Form 10-Q are based upon information available to us as of the filing date of this Form 10-Q, and we undertake no obligation to update or revise any of these forward-looking statements for any reason, whether as a result of new information, future events or otherwise after the date of this Form 10-Q, except as required by law. You should not place undue reliance on ~~Form 10-K, for~~these forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. Although we believe that the ~~fiscal year ended January 28, 2017 filed with the Securities and Exchange Commission on March 27, 2017 (the “2016 Annual Report on Form 10-K”), including the~~expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Certain factors, ~~disclosed under “Item 1A. Risk Factors,” as well as “Disclosure Regarding Forward-looking Statements” and “Item 1A. Risk Factors” below, for certain factors that~~which may cause actual results to vary materially from these forward-looking ~~statements.~~statements, accompany such statements and are discussed in our 2021 Annual Report on Form 10-K, including the disclosures under Part I, Item 1A "Risk Factors" and Part II, Item 1A "Risk Factors" of this Form 10-Q, our Q1 fiscal 2022 Quarterly Report on

Form 10-Q, and Q2 fiscal 2022 Quarterly Report on Form 10-Q.

OVERVIEW

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”), a Delaware corporation established in 1996, is a ~~global family~~leading specialty retailer offering games and entertainment products through its ecommerce properties and thousands of specialty retail brands that makes the most popular technologies affordable and simple. Within our family of brands, we are the world’s largest omnichannel video game retailer, the largest AT&T® (“AT&T”) authorized retailer, the largest Apple© (“Apple”) certified products reseller, a Cricket Wireless_TM reseller (“Cricket,” an AT&T brand) and the owner of www.thinkgeek.com, one of the world’s largest sellers of collectible pop-culture themed products. As of October 28, 2017, GameStop's retail network and family of brands include 7,462 company-operated stores in the United States, Australia, Canada and Europe.stores.

We ~~have five reportable segments, which are comprised of~~operate our business in four geographic ~~Video Game Brands segments—~~segments: United States, Canada, Australia and Europe—and a Technology Brands segment. Our Technology Brands segment includes our Spring Mobile and Simply Mac businesses. Spring Mobile owns and operates our AT&T branded wireless retail stores and Cricket branded pre-paid wireless stores.

Europe. Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. The fiscal year ending ~~February 3, 2018 ("fiscal 2017") consists of 53 weeks~~January 28, 2023 and the fiscal year ended January ~~28, 2017 ("fiscal 2016") consists~~29, 2022 each consist of 52 weeks. All three and nine month periods presented herein contain 13 and 39 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods. The discussion and analysis of our results of operations refers to continuing operations unless otherwise noted. Our business, like that of many retailers, is seasonal, with the major portion of the net sales ~~and operating profit~~ realized during the fourth ~~fiscal~~ quarter, which includes the holiday selling season.

~~Growth~~

BUSINESS PRIORITIES

The initial phase of GameStop's transformation largely occurred over the course of 2021 and the first half of 2022. This period was primarily focused on rebuilding the Company's decaying infrastructure and strengthening GameStop's value proposition, including investing in the ~~video game industry is generally driven by the introduction of~~Company's enterprise systems, technology capabilities, Store Leaders and store associates, and product catalog and offerings.

GameStop has entered a new technology. Gaming consoles are typically launched in cycles as technological developments provide significant improvements in graphics, audio quality, game play, internet connectivity and other entertainment capabilities beyond video gaming. The current generation of consoles include the Sony PlayStation 4 (2013), Microsoft Xbox One (2013) and the Nintendo Switch (March 2017). In 2016, Sony and Microsoft released refreshes to the PlayStation 4 and Xbox One, respectively, and Sony also released the PlayStation VR. In November 2017, Microsoft released a further enhanced versionphase of its ~~current generation console,~~transformation during the ~~Xbox One X.~~

~~We expect that future growth in the video game industry will also be driven by the sale~~back half of video games delivered in digital form and the expansion of other forms of gaming. We currently sell various types of products that relate to the digital category, including digitally downloadable content (“DLC”), full game downloads, Xbox LIVE, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and prepaid subscription cards. We have made significant investments in e-commerce and in-store and website functionality to enable our customers to access digital content easily and facilitate the digital sales and delivery process. We plan to continue to invest in these types of processes and channels to grow our digital sales base and enhance our market leadership position in the video game industry and in the digital aggregation and distribution category.

We continue to diversify our business by seeking out opportunities to extend our core competencies to other businesses and retail categories, including mobile and consumer electronics and collectibles, to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console cycle and we regularly evaluate potential acquisition opportunities, some of which could be material. From fiscal 2013 through October 28, 2017, we have grown our store count of AT&T authorized retailers by over 1,200 stores, primarily through acquisitions. In 2014, we introduced stand-alone collectibles stores and expanded the selection of collectible products in our stores. To further expand our collectibles business, we acquired ThinkGeek in 2015, and we plan to continue investing in this category going forward. We continue to seek to invest in other retail concepts and product lines with the intention of further diversifying our business.

In our discussion of the results of operations, we refer to comparable store sales, which is a measure commonly used in the retail industry and indicates store performance by measuring the growth in sales for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales are comprised of sales from our Video Game Brands stores, including stand-alone collectible stores, operating for at least 12 full months as well as sales related to our websites and sales we earn from sales of pre-owned merchandise to wholesalers or dealers. Comparable store sales for our international operating segments exclude the effect of changes in foreign currency exchange rates. The calculation of comparable store sales for 13 weeks and 39 weeks ended October 28, 2017 compares the 13 weeks and 39 weeks for the period ended October 28, 2017 to the most closely comparable weeks for the prior year. The method of calculating comparable store sales varies across the retail industry.2022. As a result, GameStop is focused on two overarching goals: attaining profitability in the near-future and generating sustainable growth over the long-term.

We are taking the following steps, with a significant emphasis on cost containment:

•Ensuring the Company's cost structure is sustainable relative to revenue, including taking steps to optimize our ~~method~~workforce to operate efficiently and nimbly;

•Improving margins through operational discipline and increased emphasis on higher margin collectibles and pre-owned product categories;

•Prudently increasing the size of ~~calculating comparable store sales may not~~our addressable market by growing our product catalog across PC gaming, collectibles, consumer electronics, toys, augmented reality, virtual reality and other categories that represent natural extensions of our business; and

•Sustaining a superior customer experience supported by a seamless in-store and ecommerce experience with speedy delivery to our customers.

By executing on these priorities, we can create a compelling experience for customers and be positioned to invest pragmatically in growth initiatives. We can also maintain a strong balance sheet. In connection with our cost reduction efforts, we expect to see favorable impacts to our selling, general and administrative ("SG&A") expenses in the ~~same~~quarters to come as ~~other retailers’ methods.~~we pursue profitability. We believe these efforts are critical to achieve sustained profitability to enable long-term value creation for our ~~calculation~~stockholders.

Table of ~~comparable store sales best represents our strategy as an omnichannel retailer that provides its consumers several ways to access its products.~~Contents

~~Our Technology Brands stores are excluded from~~In May 2022, we announced the ~~calculation of comparable store sales. We do not consider comparable store sales to be a meaningful metric in evaluating the performance~~launch of our ~~Technology Brands stores due~~non-custodial digital asset wallet to allow gamers and others to store, send, receive, and use cryptocurrencies and non-fungible tokens (“NFTs”) across decentralized apps. In July 2022, we launched our NFT marketplace to allow gamers, creators, collectors and others to buy, sell and trade NFTs. Our NFT marketplace enables parties to own their digital assets, which are represented and secured on the ~~frequently changing nature~~blockchain, and allows parties to connect to their own digital asset wallets to enable transactions. During fiscal November 2022 we launched the integration of ~~revenue streams~~the Immutable X blockchain protocol, which provides access to various web 3 games and ~~commission structures associated with this segment of~~NFT gaming assets to our business. Instead, we measure the performance of our Technology Brands stores by using comparable store gross profit, which is calculated using a similar methodology as comparable stores sales, but replacing sales with gross profit in the calculation. Our method of calculating comparable store gross profit may not be the same as other retailers’ methods.customers.

CONSOLIDATED RESULTS OF OPERATIONS

The following table ~~sets forth~~presents certain statement of operations items ~~(in millions)~~ and as a percentage of net ~~sales, for the periods indicated:~~ sales:

13 Weeks Ended 39 Weeks Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016
Amount
Percent of
Net Sales
Amount
Percent of
Net Sales
Amount Percent of
Net Sales Amount Percent of
Net Sales
Net sales $ 1,988.6
100.0 % $ 1,959.2
100.0 % $ 5,722.1
100.0 % $ 5,562.5
100.0 %
Cost of sales 1,299.2
65.3
1,251.0
63.9
3,706.5
64.8
3,561.1
64.0
Gross profit 689.4
34.7
708.2
36.1
2,015.6
35.2
2,001.4
36.0
Selling, general and administrative expenses 565.1
28.5
567.1
28.9
1,671.0
29.1
1,606.3
28.9
Depreciation and amortization 36.7
1.8
42.3
2.2
112.3
2.0
124.0
2.2
Operating earnings 87.6
4.4
98.8
5.0
232.3
4.1
271.1
4.9
Interest expense, net 13.9
0.7
14.8
0.7
42.2
0.7
39.2
0.7
Earnings before income tax expense 73.7
3.7
84.0
4.3
190.1
3.4
231.9
4.2
Income tax expense 14.3
0.7
33.2
1.7
49.5
0.9
87.4
1.6
Net income $ 59.4
3.0 % $ 50.8
2.6 % $ 140.6
2.5 % $ 144.5
2.6 %

We include purchasing, receiving and distribution costs in selling, general and administrative expenses ("SG&A") in the statement of operations. We include processing fees associated with purchases made by check and credit cards in cost of sales in the statement of operations. As a result of these classifications, our gross margins are not comparable to those retailers that include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with purchases made by check and credit cards in SG&A. The net effect of these classifications as a percentage of sales has not historically been material.


	Three Months Ended
	October 29, 2022				October 30, 2021				Change
	Amount		Percent of Net Sales		Amount		Percent of Net Sales		$		%
Net sales	$	1,186.4	100.0	%	$	1,296.6	100.0	%	$	(110.2)	(8.5)	%
Cost of sales	894.8		75.4		978.0		75.4		(83.2)		(8.5)
Gross profit	291.6		24.6		318.6		24.6		(27.0)		(8.5)
Selling, general and administrative expenses	387.9		32.7		421.5		32.5		(33.6)		(8.0)

Operating loss	(96.3)		(8.1)		(102.9)		(7.9)		6.6		6.4
Interest (income) expense, net	(3.7)		(0.3)		0.8		0.1		(4.5)		562.5
Loss before income taxes	(92.6)		(7.8)		(103.7)		(8.0)		11.1		(10.7)
Income tax expense	2.1		0.2		1.7		0.1		0.4		(23.5)
Net loss	$	(94.7)	(8.0)	%	$	(105.4)	(8.1)	%	$	10.7	10.2	%

	Nine Months Ended
	October 29, 2022				October 30, 2021				Change
	Amount		Percent of Net Sales		Amount		Percent of Net Sales		$		%
Net sales	$	3,700.8	100.0	%	$	3,756.8	100.0	%	$	(56.0)	(1.5)	%
Cost of sales	2,828.5		76.4		2,787.2		74.2		41.3		1.5
Gross profit	872.3		23.6		969.6		25.8		(97.3)		(10.0)
Selling, general and administrative expenses	1,227.6		33.2		1,170.7		31.2		56.9		4.9
Asset impairments	2.5		0.1		0.6		—		1.9		316.7
Operating loss	(357.8)		(9.7)		(201.7)		(5.4)		(156.1)		(77.4)
Interest (income) expense, net	(3.3)		(0.1)		26.0		0.7		(29.3)		(112.7)
Loss before income taxes	(354.5)		(9.6)		(227.7)		(6.1)		(126.8)		(55.7)
Income tax expense	6.8		0.2		6.1		0.2		0.7		11.5
Net loss	$	(361.3)	(9.8)	%	$	(233.8)	(6.3)	%	$	(127.5)	(54.5)	%

The Three and Nine Months Ended October 29, 2022 Compared to the Three and Nine Months Ended October 30, 2021

Net Sales

The following ~~tables set forth,~~table presents net sales by significant product ~~category,~~category:


	Three months ended								Nine Months Ended
	October 29, 2022				October 30, 2021				October 29, 2022				October 30, 2021
	Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales
Hardware and accessories	$	627.0	52.8	%	$	669.9	51.7	%	$	1,897.2	51.3	%	$	1,983.0	52.8	%
Software	352.1		29.7		434.5		33.5		1,152.2		31.1		1,229.0		32.7
Collectibles	207.3		17.5		192.2		14.8		651.4		17.6		544.8		14.5
Total net sales	$	1,186.4	100.0	%	$	1,296.6	100.0	%	$	3,700.8	100.0	%	$	3,756.8	100.0	%

Table of Contents

The following table presents net sales ~~and gross profit information for the periods indicated (dollars in millions):~~

13 Weeks Ended 39 Weeks Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016

Net
Sales

Percent
of Total

Net
Sales

Percent
of Total

Net
Sales

Percent
of Total

Net
Sales

Percent
of Total
New video game hardware⁽¹⁾
$ 309.5
15.6 % $ 284.4
14.5 % $ 947.8
16.6 % $ 813.7
14.6 %
New video game software 649.9
32.7
616.6
31.5
1,539.7
26.9
1,566.0
28.2
Pre-owned and value video game products 458.5
23.0
470.0
24.0
1,486.5
26.0
1,573.5
28.3
Video game accessories 136.4
6.9
156.0
8.0
456.6
8.0
438.2
7.9
Digital 37.2
1.9
44.7
2.3
127.8
2.2
123.8
2.2
Technology Brands⁽²⁾
194.2
9.8
216.3
11.0
583.9
10.2
558.0
10.0
Collectibles 138.4
6.9
109.4
5.6
375.4
6.6
281.7
5.1
Other⁽³⁾
64.5
3.2
61.8
3.1
204.4
3.5
207.6
3.7
Total $ 1,988.6
100.0 % $ 1,959.2
100.0 % $ 5,722.1
100.0 % $ 5,562.5
100.0 %

13 Weeks Ended 39 Weeks Ended
October 28, 2017 October 29, 2016 October 28, 2017 October 29, 2016

Gross
Profit

Gross
Profit
Percent

Gross
Profit

Gross
Profit
Percent

Gross
Profit

Gross
Profit
Percent

Gross
Profit

Gross
Profit
Percent
New video game hardware⁽¹⁾
$ 36.8
11.9 % $ 37.3
13.1 % $ 101.6
10.7 % $ 95.6
11.7 %
New video game software 155.9
24.0
150.0
24.3
351.4
22.8
376.0
24.0
Pre-owned and value video game products 199.7
43.6
218.0
46.4
679.0
45.7
725.2
46.1
Video game accessories 48.5
35.6
49.6
31.8
152.1
33.3
152.4
34.8
Digital 34.1
91.7
35.0
78.3
108.1
84.6
104.7
84.6
Technology Brands⁽²⁾
141.4
72.8
159.6
73.8
424.9
72.8
380.0
68.1
Collectibles 52.7
38.1
39.7
36.3
131.1
34.9
103.0
36.6
Other⁽³⁾
20.3
31.5
19.0
30.7
67.4
33.0
64.5
31.1
Total $ 689.4
34.7 % $ 708.2
36.1 % $ 2,015.6
35.2 % $ 2,001.4
36.0 %


~~(1)~~	~~Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.~~


~~(2)~~	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket branded stores and our Simply Mac business.


~~(3)~~	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving ~~Game Informer~~ ~~magazine in print form.~~

~~13 weeks ended October 28, 2017 compared with the 13 weeks ended October 29, 2016~~

13 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
($ in millions)
Net sales $ 1,988.6
$ 1,959.2
$ 29.4
1.5 %
Cost of sales 1,299.2
1,251.0
48.2
3.9
Gross profit 689.4
708.2
(18.8 ) (2.7 )
Selling, general and administrative expenses 565.1
567.1
(2.0 ) (0.4 )
Depreciation and amortization 36.7
42.3
(5.6 ) (13.2 )
Operating earnings 87.6
98.8
(11.2 ) (11.3 )
Interest expense, net 13.9
14.8
(0.9 ) (6.1 )
Earnings before income tax expense 73.7
84.0
(10.3 ) (12.3 )
Income tax expense 14.3
33.2
(18.9 ) (56.9 )
Net income $ 59.4
$ 50.8
$ 8.6
16.9 %

13 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
Net Sales: ($ in millions)
New video game hardware⁽¹⁾
$ 309.5
$ 284.4
$ 25.1
8.8 %
New video game software 649.9
616.6
33.3
5.4
Pre-owned and value video game products 458.5
470.0
(11.5 ) (2.4 )
Video game accessories 136.4
156.0
(19.6 ) (12.6 )
Digital 37.2
44.7
(7.5 ) (16.8 )
Technology Brands⁽²⁾
194.2
216.3
(22.1 ) (10.2 )
Collectibles 138.4
109.4
29.0
26.5
Other⁽³⁾
64.5
61.8
2.7
4.4
Total $ 1,988.6
$ 1,959.2
$ 29.4
1.5 %

13 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
Gross Profit: ($ in millions)
New video game hardware⁽¹⁾
$ 36.8
$ 37.3
$ (0.5 ) (1.3 )%
New video game software 155.9
150.0
5.9
3.9
Pre-owned and value video game products 199.7
218.0
(18.3 ) (8.4 )
Video game accessories 48.5
49.6
(1.1 ) (2.2 )
Digital 34.1
35.0
(0.9 ) (2.6 )
Technology Brands⁽²⁾
141.4
159.6
(18.2 ) (11.4 )
Collectibles 52.7
39.7
13.0
32.7
Other⁽³⁾
20.3
19.0
1.3
6.8
Total $ 689.4
$ 708.2
$ (18.8 ) (2.7 )%


~~(1)~~	~~Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.~~


~~(2)~~	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket branded stores and our Simply Mac business.


~~(3)~~	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving ~~Game Informer~~ ~~magazine in print form.~~

~~Net Sales~~by reportable segment:


	Three Months Ended								Nine Months Ended
	October 29, 2022				October 30, 2021				October 29, 2022				October 30, 2021
	Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales
United States	$	799.1	67.4	%	$	875.5	67.5	%	$	2,587.9	69.9	%	$	2,636.9	70.2	%
Canada	67.9		5.7		68.3		5.3		207.1		5.6		193.0		5.1
Australia	122.8		10.4		127.1		9.8		363.3		9.8		373.1		10.0
Europe	196.6		16.5		225.7		17.4		542.5		14.7		553.8		14.7
Total net sales	$	1,186.4	100.0	%	$	1,296.6	100.0	%	$	3,700.8	100.0	%	$	3,756.8	100.0	%

Net sales ~~increased $29.4~~decreased $110.2 million or 8.5% and $56.0 million or 1.5%, respectively, for the ~~13 weeks~~three and nine months ended October ~~28, 2017~~29, 2022 compared to the ~~13 weeks~~prior year.

During the three months ended October 29, ~~2016. The increase in~~2022, net sales in our United States, Canada, Australia, and Europe segments decreased by 8.7%, 0.6%, 3.4%, and 12.9%, respectively, compared to the prior year. During the nine months ended October 29, 2022, net sales in our United States, Australia, and Europe segments decreased by 1.9%, 2.6%, and 2.0% respectively, while net sales in our Canada segment increased by 7.3% compared to the prior year.

The decrease in consolidated net sales for the three and nine months ended October 29, 2022 was primarily attributable to the ~~positive~~translation impact of ~~foreign exchange rate fluctuations of $30.2~~a stronger U.S. dollar, a decline in sales from new software releases, a decline in new gaming hardware sales due to slowing demand on certain previous generation hardware, and supply constraints for the latest generation hardware, despite strong demand.

Gross Profit

During the three months ended October 29, 2022, gross profit decreased $27.0 million, ~~and an increase in comparable store sales of 1.9%~~or 8.5%, compared to the prior year quarter. The increase in comparable store sales was primarily driven by an increase in sales of new video game software, collectibles, and new video game hardware. The increase in sales in collectibles are a result of the Company's diversification strategy.

~~The increase in net sales was due to the following:~~

New video game software sales increased $33.3 million, or 5.4%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, primarily due to a stronger title line-up in the current year quarter, including those associated with the Nintendo Switch.

Collectibles sales increased $29.0 million, or 26.5%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, due to the growth of collectibles sales in our Video Game Brands stores and the growth in the number of stand-alone collectibles stores.

New video game hardware sales increased $25.1 million, or 8.8%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, primarily due to the launch of the Nintendo Switch in March 2017, which was partially offset by decreases in sales of other consoles as their cycles mature.

~~The increases described above were partially offset by the following:~~

Technology Brands sales decreased $22.1 million, or 10.2%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016. The decrease is primarily due to a slowdown in the wireless upgrade cycle and changes in commission income in the current year.

Video game accessories decreased $19.6 million, or 12.6%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, due to the launch of the PlayStation VR in the prior year quarter.

Pre-owned and value video game product sales decreased $11.5 million, or 2.4%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, primarily due to a decrease in store traffic.

~~Cost of Sales~~

Cost of sales increased $48.2 million, or 3.9%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, primarily as a result of the change in net sales discussed above as well as the changes in gross profit discussed below.

Gross ~~Profit~~

~~Gross profit decreased $18.8 million, or 2.7%, for the 13 weeks ended October 28, 2017 compared to the 13 weeks ended October 29, 2016, and gross~~ profit as a percentage of net sales ~~decreased~~increased to ~~34.7% in the current year quarter~~24.6%, compared to ~~36.1%~~24.6% in the prior ~~year quarter.~~year. The ~~decrease~~decline in gross profit ~~was driven by decreases~~is primarily attributable to the translation impact of ~~$18.3 million~~a stronger U.S. dollar, and a decline in ~~pre-owned and value video game products and $18.2 million in Technology Brands,~~net sales, partially offset by ~~increases in collectibles of $13.0 million and new video game software of $5.9 million.~~

~~The net~~a decrease in freight cost.

During the nine months ended October 29, 2022, gross profit decreased $97.3 million, or 10.0%, compared to the prior year. Gross profit as a percentage of net sales ~~was primarily due~~declined to ~~a shift~~23.6%, compared to 25.8% in ~~product mix between categories and a decrease~~the prior year. The decline in gross profit ~~percentage in pre-owned and value video game products. The gross profit in pre-owned and value video game products decreased to 43.6% in~~for the ~~13 weeks ended October 28, 2017 from 46.4% in the 13 weeks~~nine months ended October 29, ~~2016,~~2022 was primarily ~~due~~attributable to ~~promotional activity associated with pre-owned hardware.~~the translation impact of a stronger U.S. dollar, a decline in net sales, higher freight costs driven by supply chain constraints in the first half of the current year, and higher markdown rates on overstock inventory.

Selling, General and Administrative Expenses

~~SG&A was $565.1 million for~~During the ~~13 weeks ended October 28, 2017 which was flat compared to $567.1 million for the 13 weeks~~three months ended October 29, ~~2016.~~2022, SG&A expenses decreased $33.6 million, or 8.0%, compared to the prior year. SG&A expenses as a percentage of sales was comparable to the prior year. SG&A expenses decreased primarily due to a reduction in labor-related and consulting service costs driven by our focus on cost structure optimization efforts.

During the nine months ended October 29, 2022, SG&A expenses increased $56.9 million, or 4.9% compared to the prior year. SG&A expenses as a percentage of sales increased to 33.2% during the nine months ended October 29, 2022 compared to 31.2% in the prior year. SG&A expenses increased primarily due to the impact of digital asset impairment charges incurred during the first quarter of 2022 and labor-related costs incurred during the first half of the year associated with transformation initiatives. These increases are partially offset by the impact of a reduction in labor-related and consulting service costs driven by our focus on cost structure optimization efforts which accelerated during the third quarter of 2022, and the recognition of income related to our partnership with IMX.

Asset Impairments

During the nine months ended October 29, 2022 and October 30, 2021, we recognized $2.5 million and $0.6 million in asset impairment charges related to store-level assets. See Item 1, Notes to the Condensed Consolidated Financial Statements, Note 5, "Fair Value Measurements," for additional information.

Table of Contents

Interest (Income) Expense, Net

During the three months ended October 29, 2022, we recognized net interest income of $3.7 million, compared to net interest expense of $0.8 million in the comparable prior year period. The impact is primarily attributable to the amortization of discounts on our available for sale marketable securities and higher returns on invested cash.

During the nine months ended October 29, 2022 and October 30, 2021, we recognized net interest income of $3.3 million and net interest expense of $26.0 million, respectively. The impact is primarily attributable to the repayment of the $73.2 million aggregate principal amount of our then outstanding 6.75% Senior Notes due 2021 (the "2021 Senior Notes") and the remaining $216.4 million aggregate principal amount of our then outstanding 10% Senior Notes due 2023 (the "2023 Senior Notes") including a $17.8 million make-whole premium, in the first quarter of 2021.

See Part I, Item 1 "Notes to the Condensed Consolidated Financial Statements", Note 2, "Summary of Significant Accounting Policies," for additional information.

Income Tax Expense

~~Income~~We recognized income tax expense ~~was $14.3~~of $2.1 million ~~representing an effective tax rate of 19.4%,~~ for the ~~13 weeks ended October 28, 2017, compared to $33.2 million, representing an effective tax rate of 39.5%, for the 13 weeks~~three months ended October 29, ~~2016.~~2022 compared to an income tax expense of $1.7 million for the same period in 2021. Our effective income tax rate was (2.3)% for the three months ended October 29, 2022 compared to (1.6)% for the same period in 2021. The ~~decrease~~change in the effective income tax rate compared to the ~~same period in the~~ prior year period was primarily ~~driven by certain discrete tax items recognized~~due to an increased amount of pretax loss in the current ~~year quarter and the relative mix~~period, as well as a change in earnings mix.

We recognized income tax expense of ~~earnings across the jurisdictions within which we operate.~~

~~Operating Earnings and Net Income~~

~~The factors described above led to operating earnings of $87.6~~$6.8 million for the ~~13 weeks ended October 28, 2017, or a $11.2 million decrease from operating earnings of $98.8 million for the 13 weeks~~nine months ended October 29, ~~2016. Net income was $59.4 million for the 13 weeks ended October 28, 2017, which represented a 16.9% increase from net income of $50.8 million for the 13 weeks ended October 29, 2016.~~

~~39 weeks ended October 28, 2017 compared with the 39 weeks ended October 29, 2016~~

39 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
($ in millions)
Net sales $ 5,722.1
$ 5,562.5
$ 159.6
2.9 %
Cost of sales 3,706.5
3,561.1
145.4
4.1
Gross profit 2,015.6
2,001.4
14.2
0.7
Selling, general and administrative expenses 1,671.0
1,606.3
64.7
4.0
Depreciation and amortization 112.3
124.0
(11.7 ) (9.4 )
Operating earnings 232.3
271.1
(38.8 ) (14.3 )
Interest expense, net 42.2
39.2
3.0
7.7
Earnings before income tax expense 190.1
231.9
(41.8 ) (18.0 )
Income tax expense 49.5
87.4
(37.9 ) (43.4 )
Net income $ 140.6
$ 144.5
$ (3.9 ) (2.7 )%

39 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
Net Sales: ($ in millions)
New video game hardware⁽¹⁾
$ 947.8
$ 813.7
$ 134.1
16.5 %
New video game software 1,539.7
1,566.0
(26.3 ) (1.7 )
Pre-owned and value video game products 1,486.5
1,573.5
(87.0 ) (5.5 )
Video game accessories 456.6
438.2
18.4
4.2
Digital 127.8
123.8
4.0
3.2
Technology Brands⁽²⁾
583.9
558.0
25.9
4.6
Collectibles 375.4
281.7
93.7
33.3
Other⁽³⁾
204.4
207.6
(3.2 ) (1.5 )
Total $ 5,722.1
$ 5,562.5
$ 159.6
2.9 %

39 Weeks Ended Change
October 28, 2017 October 29, 2016 $ %
Gross Profit: ($ in millions)
New video game hardware⁽¹⁾
$ 101.6
$ 95.6
$ 6.0
6.3 %
New video game software 351.4
376.0
(24.6 ) (6.5 )
Pre-owned and value video game products 679.0
725.2
(46.2 ) (6.4 )
Video game accessories 152.1
152.4
(0.3 ) (0.2 )
Digital 108.1
104.7
3.4
3.2
Technology Brands⁽²⁾
424.9
380.0
44.9
11.8
Collectibles 131.1
103.0
28.1
27.3
Other⁽³⁾
67.4
64.5
2.9
4.5
Total $ 2,015.6
$ 2,001.4
$ 14.2
0.7 %


~~(1)~~	~~Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.~~


~~(2)~~	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket branded stores and our Simply Mac business.


~~(3)~~	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving ~~Game Informer~~ ~~magazine in print form.~~

~~Net Sales~~

~~Net sales increased $159.6 million, or 2.9%, for the 39 weeks ended October 28, 2017~~2022 compared to ~~the 39 weeks ended October 29, 2016. The increase in net sales was primarily attributable to~~ an ~~increase in comparable store sales~~income tax expense of 2.1% compared to the prior year period and an increase in sales in Technology Brands, as well as the positive impact of foreign exchange rate fluctuations of $22.9 million. The increase in comparable store sales was driven by an increase in sales of new video game hardware, collectibles and video game accessories. The increase in sales in Technology Brands and collectibles are a result of the Company's diversification strategy.

~~The increase in net sales was due to the following:~~

~~New video game hardware sales increased $134.1~~$6.1 million ~~or 16.5%,~~ for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily due to the launch of the Nintendo Switch in March 2017, which was partially offset by decreases in sales of other consoles as their cycles mature.

Collectibles sales increased $93.7 million, or 33.3%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, due to the growth of collectibles sales in our Video Game Brands stores and the growth in the number of stand-alone collectibles stores.

Technology Brands sales increased $25.9 million, or 4.6%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily due to the acquisition of stores in the second half of fiscal 2016 within the Technology Brands segment, partially offset by a slowdown in the wireless upgrade cycle and changes in commission income in the current year.

Video game accessories increased $18.4 million, or 4.2%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily due to the recent release of the Nintendo Switch.

~~The increases described above were partially offset by the following:~~

Pre-owned and value video game product sales decreased $87.0 million, or 5.5%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily due to the decrease in store traffic as a result of weaker new release titles in the current year period.

New video game software sales decreased $26.3 million, or 1.7%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily due to weaker new title releases in the current year period, partially offset by sales of new video game software associated with the Nintendo Switch.

~~Cost of Sales~~

Cost of sales increased $145.4 million, or 4.1%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, primarily as a result of the change in net sales discussed above as well as the changes in gross profit discussed below.

~~Gross Profit~~

Gross profit increased $14.2 million, or 0.7%, for the 39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016, and gross profit as a percentage of net sales was 35.2% in the current year period compared to 36.0% in the same period in 2021. Our effective income tax rate was (1.9)% for the prior year. The increase in gross profit was driven by increases of $44.9 million in Technology Brands, primarily related to the growth through acquisitions, $28.1 million in collectibles and $6.0 million in new video game hardware. These increases were partially offset by decreases of $46.2 million in pre-owned and value video game products and $24.6 million in new video game software.

~~The net decrease in gross profit as a percentage of net sales was due to product mix shift between categories and the following product margin rate variances:~~

~~New video game software decreased to 22.8% in the 39 weeks ended October 28, 2017 from 24.0% in the 39 weeks~~nine months ended October 29, ~~2016, primarily due~~2022 compared to ~~lower cooperative advertising funds as a percentage of sales associated with weaker new title releases in the current year period.~~

~~New video game hardware decreased to 10.7% in the 39 weeks ended October 28, 2017 from 11.7% in the 39 weeks ended October 29, 2016.~~

These decreases in gross profit as a percentage of net sales were partially offset by an increase in Technology Brands gross margin to 72.8% in the 39 weeks ended October 28, 2017 from 68.1% in the 39 weeks ended October 29, 2016, due to the growth in the number of Spring Mobile stores, which carry higher gross margin than the other businesses inside Technology Brands.

~~Selling, General and Administrative Expenses~~

~~SG&A increased $64.7 million, or 4.0%,~~(2.7)% for the ~~39 weeks ended October 28, 2017 compared to the 39 weeks ended October 29, 2016.~~same period in 2021. The ~~increase was primarily due to the growth of the Technology Brands segment stores in the second half of fiscal 2016, which have higher SG&A as a percentage of sales than the other segments.~~

~~Income Tax Expense~~

Income tax expense was $49.5 million, representing an effective tax rate of 26.0%, for the 39 weeks ended October 28, 2017, compared to $87.4 million, representing an effective tax rate of 37.7%, for the 39 weeks ended October 29, 2016. The decreasechange in the effective income tax rate compared to the ~~same period in the~~ prior year ~~was primarily driven by certain discrete tax items recognized in the current year~~ period ~~and the relative mix of earnings across the jurisdictions within which we operate.~~

~~Operating Earnings and Net Income~~

The factors described above led to operating earnings of $232.3 million for the 39 weeks ended October 28, 2017, or a 14.3% decrease from operating earnings of $271.1 million for the 39 weeks ended October 29, 2016. Net income was ~~$140.6 million for the 39 weeks ended October 28, 2017, which represented a 2.7% decrease from net income of $144.5 million for the 39 weeks ended October 29, 2016.~~

~~SEGMENT PERFORMANCE~~

We report our business in the following segments: Video Game Brands, which consists of four geographic segments in the United States, Canada, Australia and Europe, and Technology Brands. We identified these segments based on a combination of geographic areas, the methods with which we analyze performance, the way in which our sales and profits are derived and how we divide management responsibility. Our sales and profits are driven through our physical stores, which are highly integrated with our e-commerce, digital and mobile businesses. Due to this integration, our physical stores are the basis for our segment reporting. Each of the Video Game Brands segments consists primarily of retail operations, with all stores engaged in the sale of new and pre-owned video game hardware, software and accessories (which we refer to as video game products), new and pre-owned mobile devices, related accessories and collectibles. These products are substantially the same regardless of geographic location, with the primary differences in merchandise carried being the timing of the release of new products or technologies in the various segments.

With our presence in international markets, we have operations in several foreign currencies, including the Euro, Australian dollar, New Zealand dollar, Canadian dollar, Swiss franc, Danish kroner, Swedish krona, and the Norwegian kroner.

Operating earnings (loss) by operating segment, defined as income (loss) from operations before intercompany royalty fees, net interest expense and income taxes, and net sales by reportable unit in U.S. dollars were as follows (in millions):

~~13 weeks ended October 28, 2017 compared with the 13 weeks ended October 29, 2016~~

As of and for the 13 Weeks Ended October 28, 2017
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 1,188.0
$ 97.1
$ 156.2
$ 353.1
$ 194.2
$ 1,988.6
Operating earnings $ 52.2
$ 3.2
$ 5.3
$ 8.9
$ 18.0
$ 87.6
Segment operating data:
Store count 3,905
321
470
1,260
1,506
7,462
Comparable store sales⁽¹⁾
0.6 % 6.7 % 6.1 % 3.4 % n/a
1.9 %

As of and for the 13 Weeks Ended October 29, 2016
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 1,195.2
$ 86.8
$ 139.4
$ 321.5
$ 216.3
$ 1,959.2
Operating earnings $ 59.1
$ 3.9
$ 3.5
$ 8.8
$ 23.5
$ 98.8
Segment operating data:
Store count 3,955
322
457
1,283
1,569
7,586
Comparable store sales⁽¹⁾
(8.4 )% (11.4 )% 0.1 % (0.5 )% n/a
(6.5 )%

~~(1)~~

Our Technology Brands stores are excluded from the calculation of comparable store sales as we do not consider it to be a meaningful metric in evaluating their performance due to the frequently changing nature of revenue streams and commission structures associated with this segment of our business. Instead, we measure the performance of our Technology Brands stores by using comparable store gross profit, which is calculated using a similar methodology as comparable store sales, but replacing sales with gross profit in the calculation. During the 13 weeks ended October 28, 2017, comparable store gross profit for our Technology Brands stores declined 16.3%.

~~Video Game Brands~~

~~United States~~

Segment results for Video Game Brands in the United States include retail GameStop operations in 50 states, the District of Columbia and Guam, the electronic commerce websites www.gamestop.com and www.thinkgeek.com, ~~Game Informer~~ magazine; and Kongregate, a web and mobile gaming platform that we sold in July 2017. Net sales for the 13 weeks ended October 28, 2017 decreased $7.2 million, or 0.6%, compared to the 13 weeks ended October 29, 2016, primarily due to the impact of the sale of Kongregate, partially offset by a 0.6% increase in comparable store sales. The increase in comparable store sales was primarily the result of an increase in sales of collectibles, new video game hardware and new video game software, partially offset by a decrease in sales of pre-owned and value video game products and video game accessories. Operating earnings for the 13 weeks ended October 28, 2017 decreased $6.9 million compared to the prior year quarter. The decrease in operating earnings was primarily a result of a decrease in gross profit, mainly due to the decline in sales of pre-owned and value video game products.

~~Canada~~

Segment results for Canada include retail and e-commerce operations in Canada. Net sales in the Canadian segment for the 13 weeks ended October 28, 2017 increased $10.3 million, or 11.9%, compared to the 13 weeks ended October 29, 2016, primarily due to a 6.7% increase in comparable store sales and the positive impact of foreign exchange rate fluctuations of $4.7 million. The increase in comparable store sales was primarily driven by the launch of the Nintendo Switch as well as an increase in sales of collectibles. Operating earnings for the 13 weeks ended October 28, 2017 decreased $0.7 million compared to the prior year quarter.

~~Australia~~

Segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Net sales in the Australian segment for the 13 weeks ended October 28, 2017 increased $16.8 million, or 12.1%, compared to the 13 weeks ended October 29, 2016. The increase in net sales was primarily the result of an increase in comparable store sales of 6.1%, the positive impact of foreign exchange rate fluctuations of $5.5 million and the opening of 14 new Zing branded collectibles stores since the prior year quarter. The increase in comparable store sales was primarily driven by the launch of the Nintendo Switch and an increase in sales of collectibles. Operating earnings for the 13 weeks ended October 28, 2017 increased $1.8 million compared to the prior year quarter.

~~Europe~~

Segment results for Europe include retail and e-commerce operations in 10 European countries. Net sales in the European segment for the 13 weeks ended October 28, 2017 increased $31.6 million, or 9.8%, compared to the 13 weeks ended October 29, 2016, primarily due to an ~~increase in comparable store sales~~increased amount of 3.4% and the positive impact of foreign exchange rate fluctuations of $20.0 million. The increase in comparable store sales was driven by the launch of the Nintendo Switch and an increase in sales of collectibles. Operating earnings for the 13 weeks ended October 28, 2017 were up slightly compared to the prior year quarter.

~~Technology Brands~~

Segment results for the Technology Brands segment include our Spring Mobile managed AT&T and Cricket branded stores and our Simply Mac business. Net sales for the 13 weeks ended October 28, 2017 decreased $22.1 million, or 10.2%, compared to the prior year quarter, as a result of the slowdownpretax loss in the wireless upgrade cycle and changes in commission income which resulted in a 16.3% decline in comparable store gross profit. Operating earnings for the 13 weeks ended October 28, 2017 decreased $5.5 million compared to the prior year quarter.

~~39 weeks ended October 28, 2017 compared with the 39 weeks ended October 29, 2016~~

As of and for the 39 Weeks Ended October 28, 2017
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 3,545.3
$ 256.9
$ 438.2
$ 897.8
$ 583.9
$ 5,722.1
Operating earnings (loss) $ 175.3
$ 5.1
$ 10.2
$ (2.4 ) $ 44.1
$ 232.3
Segment operating data:
Store count 3,905
321
470
1,260
1,506
7,462
Comparable store sales⁽¹⁾
(1.1 )% 10.9 % 10.4 % 9.3 % n/a
2.1 %

As of and for the 39 Weeks Ended October 29, 2016
United
States
Canada Australia Europe Technology Brands Consolidated
Net sales $ 3,586.5
$ 231.2
$ 376.6
$ 810.2
$ 558.0
$ 5,562.5
Operating earnings (loss) $ 204.7
$ 8.9
$ 7.0
$ (5.7 ) $ 56.2
$ 271.1
Segment operating data:
Store count 3,955
322
457
1,283
1,569
7,586
Comparable store sales⁽¹⁾
(8.9 )% (9.2 )% (1.4 )% (4.0 )% n/a
(7.6 )%

~~(1)~~

Our Technology Brands stores are excluded from the calculation of comparable store sales as we do not consider it to be a meaningful metric in evaluating their performance due to the frequently changing nature of revenue streams and commission structures associated with this segment of our business. Instead, we measure the performance of our Technology Brands stores by using comparable store gross profit, which is calculated using a similar methodology as comparable store sales, but replacing sales with gross profit in the calculation. During the 39 weeks ended October 28, 2017, comparable store gross profit for our Technology Brands stores declined 16.2%.

~~Video Game Brands~~

~~United States~~

Segment results for Video Game Brands in the United States include retail GameStop operations in 50 states, the District of Columbia and Guam, the electronic commerce websites www.gamestop.com and www.thinkgeek.com, ~~Game Informer~~ magazine and Kongregate, a platform for web and mobile gaming which we sold in July 2017. Net sales for the 39 weeks ended October 28, 2017 decreased $41.2 million, or 1.1%, compared to the 39 weeks ended October 29, 2016, primarily due to a 1.1% decrease in comparable store sales. The decrease in comparable store sales was primarily the result of a decrease in sales of pre-owned and value video game products and new video game software, partially offset by an increase in sales of collectibles and new video game hardware. Operating earnings for the 39 weeks ended October 28, 2017 decreased $29.4 million compared to the prior year period. The decrease in operating earnings was primarily a result of a decrease in gross profit, mainly due to the decline in sales of pre-owned and value video game products and new video game software and their gross margins, partially offset by a $7.3 million gain on the sale of Kongregate and lower depreciation and amortization expense.

~~Canada~~

Segment results for Canada include retail and e-commerce operations in Canada. Net sales in the Canadian segment for the 39 weeks ended October 28, 2017 increased $25.7 million, or 11.1%, compared to the 39 weeks ended October 29, 2016, primarily due to a 10.9% increase in comparable store sales and the positive impact of foreign exchange rate fluctuations of $2.8 million. This increase in comparable store sales was primarily driven by the launch of the Nintendo Switchcurrent period, as well as ~~an increase~~a change in ~~sales of collectibles, partially offset by a decline in sales of pre-owned and value video game products. Operating~~ earnings ~~for the 39 weeks ended October 28, 2017 decreased $3.8 million compared~~mix.

See Part I, Item 1 "Notes to the ~~prior year period, primarily driven by a decline in gross profit associated with a decline in pre-owned and value video game sales and their gross margin.~~Condensed Consolidated Financial Statements", Note 10, "Income Taxes," for additional information.

~~Australia~~

Segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Net sales in the Australian segment for the 39 weeks ended October 28, 2017 increased $61.6 million, or 16.4%, compared to the 39 weeks ended October 29, 2016. The increase in net sales was primarily the result of an increase in comparable store sales of 10.4%, the positive impact of foreign exchange rate fluctuations of $11.9 million, and the opening of 14 new Zing branded collectibles stores since the prior year period. The increase in comparable store sales was primarily driven by the launch of the Nintendo Switch and an increase in the sales of collectibles. Operating earnings for the 39 weeks ended October 28, 2017 increased $3.2 million driven by an increase in sales offset by an increase in costs associated with the expansion of our collectibles store base.

~~Europe~~

Segment results for Europe include retail operations and e-commerce operations in 10 European countries. Net sales in the European segment for the 39 weeks ended October 28, 2017 increased $87.6 million, or 10.8%, compared to the 39 weeks ended October 29, 2016, primarily due to an increase in comparable store sales of 9.3% and the positive impact of foreign exchange rate fluctuations of $8.2 million. The increase in comparable store sales was primarily driven by the launch of the Nintendo Switch and an increase in sales of pre-owned and value video game products and collectibles. Operating loss for the 39 weeks ended October 28, 2017 decreased $3.3 million compared to the prior year period primarily due to an increase in gross profit.

~~Technology Brands~~

Segment results for the Technology Brands segment include our Spring Mobile managed AT&T and Cricket branded stores and our Simply Mac business. Net sales for the 39 weeks ended October 28, 2017 increased $25.9 million, or 4.6%, compared to the 39 weeks ended October 29, 2016, as a result of acquisition activity in the second half of fiscal 2016. The increase in sales was partially offset by a slowdown in the wireless upgrade cycle and changes in commission income in the current year period which resulted in a 16.2% decline in comparable store gross profit. Operating earnings for the 39 weeks ended October 28, 2017 decreased $12.1 million compared to the prior year period, primarily due to the decline in comparable store gross profit.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and marketable securities


	October 29, 2022		October 30, 2021		January 29, 2022
Cash and cash equivalents	$	803.8	$	1,413.0	$	1,271.4
Marketable securities	238.3		—		—
Cash, cash equivalents and marketable securities	$	1,042.1	$	1,413.0	$	1,271.4

Overview

~~Based~~Our principal sources of liquidity are cash from operations, cash on ~~our current operating plans, we believe that available cash balances, cash generated~~hand, and borrowings from the capital markets, which include our ~~operating activities and funds available under our $420 million asset-based~~ revolving credit facility together will provide sufficient liquidity to fund our operations, store openings and remodeling activities and corporate capital allocation programs, including acquisitions, debt or share repurchases, and the payment of dividends declared by the Board of Directors, for at least the next 12 months.

facilities. As of October ~~28, 2017,~~29, 2022, we had total unrestricted cash and cash equivalents on hand of ~~$454.7~~$803.8 million, marketable securities of $238.3 million, and an additional ~~$392.4~~$319.2 million of available borrowing capacity under our revolving credit facilities. On March 15, 2021, we repaid our outstanding borrowings of $25.0 million under our then outstanding asset-based revolving credit facility (the "2022 Revolver").

During the ~~Revolver.~~ nine months ended October 30, 2021, we sold an aggregate of 34,000,000 shares of our common stock under our at-the market equity offering program (the "ATM Transactions"). We generated $1.67 billion in aggregate net proceeds from sales under the ATM Transactions. The net proceeds generated from sales under the ATM Transactions have been, and are expected to be, used for working capital and general corporate purposes, including repayment of indebtedness, funding our transformation, growth initiatives and product category expansion efforts, and capital expenditures and the satisfaction of our tax withholding obligations upon the vesting of shares of restricted stock held by our executive officers and other employees.

Additionally, during the first quarter of 2021, we repaid the remaining $73.2 million aggregate principal amount of our then outstanding 2021 Senior Notes and the remaining $216.4 million aggregate principal amount of our then outstanding 2023 Senior Notes. In the second quarter of 2021, the six separate unsecured term loans held by our French subsidiary, Micromania SAS, for a total of €40.0 million ($38.7 million as of October 29, 2022) were extended for five years.

Table of Contents

On an ongoing basis, we evaluate and consider certain strategic ~~acquisitions,~~operating alternatives, including divestitures, ~~repurchasing shares~~restructuring or dissolution of unprofitable business segments, uses for our ~~common stock or our outstanding debt obligations,~~excess cash in low-risk, short-term investments, as well as ~~other transactions~~equity and debt financing alternatives that we believe may enhance stockholder value. ~~These transactions may require cash expenditures that may be funded through a combination of cash on hand, debt or equity offerings, or borrowings on our Revolver.~~ The nature, amount ~~nature~~ and timing of any ~~borrowings~~strategic operational change, or ~~sales of debt or equity securities~~financing transactions that we might pursue will depend on a variety of factors, including, as of the applicable time, our available cash and liquidity and operating ~~performance and other circumstances;~~performance; our ~~then-current~~ commitments and obligations; ~~the amount, nature and timing of~~ our capital requirements; ~~any~~ limitations imposed byunder our ~~current~~ credit arrangements; and overall market conditions.

~~Cash Flows~~

~~During the 39 weeks ended October 28, 2017, cash used in operations was $17.1 million, compared to cash provided~~Many of our vendors have been impacted by operations of $131.6 million during the 39 weeks ended October 29, 2016. The decrease in cash provided by operations of $148.7 million was primarily attributable to the timing of inventory purchases and vendor payments.

Cash used in investing activities was $40.9 million during the 39 weeks ended October 28, 2017, compared to $541.5 million during the the 39 weeks ended October 29, 2016. The $500.6 million decrease in cash used in investing activities is primarily attributable to higher acquisition activity in our Technology Brands segmentvolatility in the ~~prior year period combined with lower capital expenditures in~~supply chain financing market. Our vendors have requested and may continue to request credit support collateral for our inventory purchase obligations and the ~~current year period. In addition, we received net proceeds~~levels of ~~$51.2 million from the sale~~such collateral will depend on a variety of ~~Kongregate in July 2017.~~factors including our inventory purchase levels, available payment terms for inventories, availability of borrowing capacity under our credit facilities, favorable credit terms and costs of providing collateral.

Cash used in financing activities was $163.9 million during the 39 weeks ended October 28, 2017, compared to cash provided by financing activities of $296.8 million during the 39 weeks ended October 29, 2016. The change is primarily due to the issuance of our $475.0 million 2021 Senior Notes, in March 2016.

Sources of ~~Liquidity~~Liquidity; Uses of Capital

We utilize cash generated from operations, cash on hand and short-term liquid investments, and have funds available to us under our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various ~~growth~~ initiatives. Our cash and cash equivalents are carried at ~~cost~~fair value and consist primarily of ~~time~~U.S. government bonds and notes, money market funds, cash deposits with commercial ~~banks.~~banks, and highly rated direct short-term instruments that mature in 90 days or less. Our marketable securities are also carried at fair value and include investments in certain highly-rated short-term government bonds and notes that mature in less than one year. Our investment policy is designed to preserve principal and liquidity of our short-term investments.

~~As of October 28, 2017,~~In November 2021 we ~~maintained an existing $400.0 million asset-backed revolving~~entered into a credit agreement for a secured asset-based credit facility comprised of a $500 million revolving line of credit which matures in November 2026 ("2026 Revolver"), ~~including~~and includes a ~~$50.0~~$50 million swing loan revolving sub-facility, a $50 million Canadian revolving sub-facility, and a $250 million letter of credit ~~sublimit, that was set to expire~~sublimit. As of the end of the third quarter of 2022, based on ~~March 25, 2019. The Revolver has an expansion feature to allow~~our borrowing base and amounts reserved for ~~an additional $200.0 million if certain conditions are met. Availability~~outstanding letters of credit, total effective availability under the 2026 Revolver is subject to a monthly borrowing base calculation. We are required to pay a commitment fee of 0.25% for any unused portion of the total commitment under the Revolver. The per annum interest is variable and is based on the London Interbank Offered (“LIBO”) rate or the prime rate, in each case plus an applicable margin.was $319.2 million. As of October ~~28, 2017, our applicable margins~~29, 2022, no loan amounts were ~~0.25% for prime rate loans and 1.25% for LIBO rate loans. Total availability~~outstanding under the 2026 Revolver ~~was $392.4~~and $130.8 million as of ~~October 28, 2017, with no outstanding borrowings and outstanding~~ standby letters of credit ~~of $7.5 million.~~

~~On November 20, 2017, we entered into a second amendment to our Revolver (“Amended Revolver”). The Amended Revolver increases the borrowing base capacity up to $420.0 million~~were issued and extends the maturity date from March 2019 to November 2022. The Amended Revolver maintains the existing $200.0 million expansion feature and allows for an incremental $50.0 million first-in, last-out facility. The applicable margins for prime rate loans are reduced from a range of 0.25% to 0.75% to a range of 0.25% to 0.50% and, for LIBO rate loans, reduced from a range of 1.25% to 1.75% to a range of 1.25% to 1.50%. Other terms and covenantsundrawn under the ~~Amended~~2026 Revolver.

Separate from the 2026 Revolver, ~~remain substantially unchanged.~~we maintain uncommitted facilities with certain lenders that provide for the issuance of letters of credit and bank guarantees, at times supported by cash collateral. As of October 29, 2022, we had $13.4 million of outstanding letters of credit and other bank guarantees under facilities outside of the 2026 Revolver.

~~In March 2016, we issued~~Cash Flows


	Nine Months Ended
	October 29, 2022		October 30, 2021		Change
Cash (used in) provided by operating activities	$	(230.0)	$	(324.0)	$	94.0
Cash (used in) provided by investing activities	(203.6)		(41.1)		(162.5)
Cash (used in) provided by financing activities	(3.3)		1,203.7		(1,207.0)
Exchange rate effect on cash, cash equivalents and restricted cash	(23.5)		(5.5)		(18.0)
(Decrease) increase in cash, cash equivalents and restricted cash	$	(460.4)	$	833.1	$	(1,293.5)

Operating Activities

During the ~~$475.0~~nine months ended October 29, 2022, cash flows from operating activities were an outflow of $230.0 million, ~~aggregate principal amount~~compared with an outflow of ~~unsecured 6.75% senior notes~~$324.0 million during the same period last year. Cash used in operating activities during the nine months ended October 29, 2022 was primarily due ~~March 15,~~to an increase in net loss and the impact of merchandise inventory purchases to support seasonal sales activity. Cash used in operating activities during the nine months ended October 30, 2021 ~~(the "2021 Senior Notes"). Interest is payable semi-annually~~was primarily due to the impact of increased merchandise inventory purchasing as a mitigation response to global supply chain issues and to support our prior year product category expansion.

Investing Activities

Cash flows from investing activities were an outflow of $203.6 million during the nine months ended October 29, 2022 compared to an outflow of $41.1 million during the same period last year. Cash used in ~~arrears on March 15~~investing activities during the nine months ended October 29, 2022 was primarily attributable to purchases of marketable securities, technological investments, and ~~September 15~~investments in two new fulfillment centers, partially offset by proceeds from the sale of ~~each year. The~~digital assets. Cash used in investing activities during the nine months ended October 30, 2021 was primarily attributable to higher capital expenditures.

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Financing Activities

Cash flows from financing activities were an outflow of $3.3 million during the nine months ended October 29, 2022 compared to an inflow of $1,203.7 million during the comparable prior year period. Cash used in financing activities during the nine months ended October 29, 2022 was primarily attributable to settlement of stock-based awards. Cash provided by financing activities during the nine months ended October 30, 2021 was due to $1,672.8 million in aggregate net proceeds from the ~~offering were used~~sale of shares of common stock in the ATM Offering, partially offset by the voluntary redemption of our then outstanding 2023 Senior Notes for ~~general corporate purposes, including acquisitions and dividends.~~

~~In September 2014, we issued $350.0~~an aggregate of $234.2 million ~~aggregate principal amount~~(inclusive of ~~unsecured 5.50% senior notes due October 1, 2019 (the "2019 Senior Notes," and together with the~~a $17.8 million make-whole premium), settlement of $136.6 million of stock-based awards, repayment of $73.2 million to retire at maturity our then outstanding 2021 Senior Notes, ~~the “Senior Notes”). Interest is payable semi-annually in arrears on April 1 and October 1~~repayment of ~~each year. The net proceeds from the offering were used for general corporate purposes, including acquisitions and dividends.~~

~~The agreement governing~~$25.0 million of our Revolver and the indentures governing our Senior Notes place certain restrictions on us and our subsidiaries, including, among others, limitations on asset sales, additional liens, investments, incurrence of additional debt and share repurchases. In addition, the indentures governing our Revolver and Senior Notes contain customary events of default, including, among others, payment defaults, breaches of covenants and certain events of bankruptcy, insolvency and reorganization. The Revolver is also subject to a fixed charge coverage ratio covenant if excess availability is below certain thresholds. We are currently in compliance with all covenants under our indentures governing the Senior Notes and our Revolver.

~~See Note 4, “Debt,” to our consolidated financial statements for additional information related to our Revolver and Senior Notes.~~

In September 2007, our Luxembourg subsidiary entered into a discretionary $20 million uncommitted line of credit (the “Line of Credit”) with Bank of America. There is no term associated with the Line of Credit and Bank of America may withdraw the facility at any time without notice. The Line of Credit is available to our foreign subsidiaries for use primarily as a bank overdraft facility for short-term liquidity needs and for the issuance of bank guarantees and letters of credit to support operations. As of October 28, 2017, there were no cash overdraftsthen outstanding borrowing under the ~~Line of Credit and bank guarantees outstanding totaled $9.9 million.~~

~~Uses of Capital~~

Our future capital requirements will depend upon the timing and extent of our ongoing investments in our strategic initiatives as well as the number of new stores we open and the timing of those openings within a given fiscal year.

Capital expenditures for fiscal 2017 are projected to be approximately $110 million to $120 million, used primarily to invest in our distribution and information systems and digital initiatives in support of our operations; new store openings and store remodels; and continued growth of our Technology Brands businesses.

On March 1, 2017, our Board of Directors authorized an increase in our annual cash dividend from $1.48 to $1.52 per share of Class A Common Stock, which represents an increase of 2.7%. On September 21, 2017, we made quarterly dividend payments of $0.38 per share of Class A Common Stock to stockholders of record on September 8, 2017. Additionally, on ~~November 17, 2017~~, our Board of Directors approved a quarterly cash dividend to our stockholders of $0.38 per share of Class A Common Stock payable on December 12, 2017 to stockholders of record at the close of business on December 1, 2017. Future dividends will be subject to approval by our Board of Directors.

2022 Revolver.

CRITICAL ACCOUNTING POLICIES

Our ~~unaudited~~condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and ~~do not include all~~exclude certain disclosures required under GAAP for complete consolidated financial statements. Preparation of these statements requires us to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these condensed consolidated financial statements. For a summary of significant accounting policies and the means by which we develop estimates thereon, see “Part II—Item 7.7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2016~~2021 Annual Report on Form 10-K. ~~Other than the adoption of Accounting Standard Update 2016-16, as described in Note 1, "General Information," to our unaudited condensed consolidated financial statements, there~~There have been no material changes to our critical accounting policies from those included in our ~~2016~~2021 Annual Report on Form 10-K.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Item 1 of Part I, "Notes to the Condensed Consolidated Financial Statements", Note 13 , "Recently Adopted Accounting Standards" to our ~~unaudited~~ condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated financial statements.

~~DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS~~OFF-BALANCE SHEET ARRANGEMENTS

~~This Quarterly Report on Form 10-Q and~~We had no material off-balance sheet arrangements as of October 29, 2022 other ~~oral and written statements made by us~~than those disclosed in Part I, Item 1 "Notes to the ~~public contain forward-looking~~Condensed Consolidated Financial Statements", Note 6 "Debt" and Note 7 "Commitments and Contingencies" of our condensed consolidated financial statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements involve a number of risks and uncertainties. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Please refer to the "Disclosure Regarding Forward-looking Statements" and "Risk Factors" sections in our 2016 Annual Report on Form 10-K as well as Item 1A of Part II of this Quarterly Report on Form 10-Q for ~~a description of these risks and uncertainties.~~additional information.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. In light of these risks and uncertainties, the forward-looking events and circumstances contained in this Quarterly Report on Form 10-Q may not occur, causing actual results to differ materially from those anticipated or implied by our forward-looking statements.



~~ITEM 3.~~	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes into our quantitative and qualitative disclosures about market risk as set forth in Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risks" in our ~~2016~~2021 Annual Report on Form 10-K.



~~ITEM 4.~~	ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of ourOur disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange ~~Act) at the~~Act of 1934 (the "Exchange Act")) are designed to provide reasonable assurance ~~level. Based on this evaluation,~~that required disclosures in the reports that we file or submit under the Exchange Act has been appropriately recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and are effective in ensuring that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, ~~concluded that,~~as appropriate to allow timely decisions regarding required disclosure. Our principal executive officer and principal financial officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report ~~our disclosure controls~~ and, ~~procedures are designed to provide reasonable assurance of achieving their objectives and~~based on that evaluation, determined that our disclosure controls and procedures ~~are~~were effective as of October 29, 2022 at the reasonable assurance level. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2022, we implemented new enterprise resource planning ("ERP") software, SAP, as part of a plan to integrate and upgrade our systems and processes. Additional implementation activities are expected to continue in phases over the next few years. This project is expected to improve the efficiency and effectiveness of financial and business transaction processes, as well as the underlying systems environment. While we expect SAP to strengthen our internal financial controls, there are inherent risks in implementing any new system. Management will continue to evaluate and monitor our internal controls over financial reporting as processes and procedures in each of the affected areas evolve.

There ~~was~~were no ~~change~~other changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our ~~most recently completed fiscal~~third quarter that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION



~~ITEM 1.~~	ITEM 1. LEGAL PROCEEDINGS

InThe matters described in Part I, Item 1 "Notes to the ~~ordinary course of our business, we~~Condensed Consolidated Financial Statements", Note 7 "Commitments and Contingencies - Legal Proceedings" in this Quarterly Report on Form 10-Q are from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions and consumer class actions. We may enter into discussions regarding settlement of these and other types of lawsuits, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations or liquidity.incorporated by reference.

Certain of our French subsidiaries have been under audit by the French Tax Administration (the "FTA") for fiscal years 2008 through 2015. We received tax reassessment notices on December 23, 2015 and April 4, 2016, pursuant to which the FTA asserted that the French subsidiaries were ineligible to claim certain tax deductions from November 4, 2008, through January 31, 2013, resulting in a potential additional tax charge of approximately €85.5 million. We may receive additional tax reassessments in material amounts for subsequent fiscal years. We filed a response to each reassessment and intend to vigorously contest the reassessments through administrative procedures. If we are unable to resolve this matter through administrative remedies at the FTA, we plan to pursue judicial remedies. We believe our tax positions will be sustained and have not taken a reserve for any potential adjustment based on the reassessment. If we were not to prevail, then the adjustment to our income tax provision could be material.



~~ITEM 1A.~~	ITEM 1A. RISK FACTORS

~~You should carefully consider the factors discussed~~Our operations and financial results are subject to various risks and uncertainties, including those set forth below and those described in ~~“Item 1A. Risk Factors”~~Part I, Item 1A "Risk Factors" in our ~~2016~~2021 Annual Report on Form ~~10-K. These risks~~10-K, which could ~~materially and~~ adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common and capital stock.

Strategic and Operational Risks Related to Digital Asset Initiatives

Our new digital asset products and services may not achieve our desired results and may expose us to new risks.

In late May 2022, we launched a beta version of a non-custodial digital asset wallet, which allows gamers and other users to manage, send, receive and use cryptocurrencies, non-fungible tokens (“NFTs”) and other digital assets across decentralized apps. In July 2022, we launched a beta version of our peer-to-peer NFT marketplace, which allows gamers, creators, collectors and other users to publish, view, buy and sell NFTs, and allows certain creators to mint NFTs on certain decentralized cryptographic protocols. We are also pursuing, and plan to continue to pursue, other business and strategic initiatives associated with digital assets and blockchain technology.

The digital asset economy is highly competitive and rapidly evolving with frequent launches of new or improved products and services, and frequent entry of new competitors in the U.S. and internationally. Engaging in these new initiatives exposes us to a variety of risks, including our ability to successfully develop, obtain or introduce new and improved, competitive, efficient and effective products, systems and processes, attract, maintain and grow our user base, and hire and retain the necessary personnel to support these activities. If and to the extent we are unable to successfully execute these initiatives, we may incur unanticipated costs and losses, and face other adverse consequences, such as negative reputational effects. In addition, the actual effects of pursuing these initiatives may differ, possibly materially, from the benefits that we expect to realize from them, such as the generation of additional revenues.

The launch of our beta versions of a non-custodial digital asset wallet and an NFT marketplace also subjects us to risks similar to those associated with any new product offerings, including, but not limited to, our ability to accurately anticipate market demand and acceptance, creator and buyer acceptance, technical issues with the operation of the products, and legal and regulatory risks as discussed herein.

Digital assets are a novel asset class that carries unique risks, including extreme price volatility.

Cryptocurrencies, digital currencies, coins, tokens, NFTs, stablecoins, and other digital or crypto assets or instruments that are issued and transferred using distributed ledger or blockchain technology (collectively referred to herein as “digital assets”) are a new and evolving asset class. The characteristics of particular digital assets within this broad asset class may differ significantly.

We receive payments in digital assets in connection with certain of our digital asset products and services. We also invest, and expect to continue to invest in the future, directly or indirectly, in or through digital assets, which may include, but are not limited to, sales and pre-sales of certain digital assets, whether by token issuance agreements or other methods. There is no guarantee that these investments will maintain their value as measured against fiat currencies. Digital assets continue to be an emerging asset class based on emerging technologies, and investment in digital assets is subject to a number of factors relating to the capabilities and development of blockchain technologies, such as the infancy of their development, their dependence on the internet and other technologies, their dependence on the role played by miners, validators and developers and the potential for malicious activity, among other factors. Further, there can be no assurance that the blockchain technology on which digital assets are transacted does not have undiscovered flaws that may allow for such digital assets to be compromised, resulting in the loss of some or all of our investments in such digital assets. Finally, the intrinsic value of digital assets is particularly uncertain and difficult to determine due to the novel and rapidly changing nature of digital asset markets. There can be no assurance that digital assets will maintain their value in the future, or that acceptance of using digital assets as currency or to make payments by mainstream retail merchants and commercial businesses, or for any other uses, will continue to grow. Moreover, due to the novelty of the asset class and the evolving patchwork of regulatory oversight of digital asset markets, fraud and market manipulation are not uncommon in such markets, all of which could negatively impact the value of our digital asset investments and have an adverse impact on the value of an investment in our business.

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We use third parties to custody most of our digital asset investments. The financial institutions, exchanges or other third parties we select to custody our digital assets may become insolvent or subject to cybersecurity attacks, causing us to lose all or a portion of our digital assets held by those custodians. Furthermore, in the event of bankruptcy of such a service provider, our digital assets held by that third party could, depending on the manner in which such assets are held, be considered the property of the bankruptcy estate and we could be treated as a general unsecured creditor in bankruptcy proceedings. Such a result may lead to losses for us and have an adverse impact on our business.

Digital assets may be subject to hacking, social engineering and other cyber attacks, which could subject us to monetary losses, user disputes, reputational harm, and regulatory scrutiny.

Digital products and services are inherently digital and therefore subject to a heightened risk of hacking, cyber attacks and other cybersecurity threats. We have taken certain steps to mitigate against those risks. Despite these efforts, the safeguards we have implemented or may implement in the future to protect against cybersecurity threats may be insufficient to prevent malicious activities, and if our products and services are exploited and our digital assets are stolen, we could experience significant financial harm.

Actual or perceived breaches or cybersecurity attacks directed to other digital asset platforms or services could also create a general loss of customer confidence in the digital asset industry and the use of blockchain technologies, which could negatively impact us.

In addition, our non-custodial digital asset wallet allows gamers and other users to manage, send, receive and use cryptocurrencies and NFTs across decentralized apps. To own, transfer or use a digital asset on its underlying blockchain network, a user must have a private and public key pair associated with a network address, commonly referred to as a “wallet.” Each wallet has a unique public key and private key pair, wherein each key is a string of alphanumerical characters. Digital assets are generally controlled only by the possessor of the unique private key relating to the digital wallet in which the digital assets are held, and such private key must be securely kept private to prevent a third party from accessing the digital assets held in such a wallet. We do not possess or custody private keys or wallet recovery phrases; the users of the wallet are solely responsible for their private keys and wallet recovery phrases. If, however, a private key to a wallet containing digital assets held by a user is stolen, lost, destroyed or otherwise unavailable or compromised, and there is no available backup of the private key, the user will be unable to access the digital assets in the related wallet. Any loss of private keys related to, or a hack or other compromise of, the digital wallets used to manage users’ digital assets could adversely affect the users’ ability to access, transfer or sell their digital assets, and subject us to user disputes, reputational harm, regulatory scrutiny and other losses that could adversely impact our business, operating results and financial condition.

If our systems, the blockchain networks on which our digital asset products and services are offered, or our third party partners fail to perform or are inadequate, we may experience adverse consequences, including financial losses, customer dissatisfaction and reputational harm.

Similar to other aspects of our business, our digital asset products and services are reliant on certain third party partners, including, but not limited to, fiat-to-crypto onramp providers, cloud computing services and data centers. Because we rely on third parties to provide these services and to facilitate certain of our business activities, we face increased operational risks. These third parties may be subject to legal, regulatory, financial, and labor issues, cybersecurity incidents, computer viruses, break-ins, denial-of-service attacks, privacy breaches, sabotage, service terminations, interruptions, disruptions, and other misconduct. They are also vulnerable to damage or interruption from human error, fires, natural disasters (including, but not limited to, floods, earthquakes, hurricanes and tornados), power loss, telecommunications failures, terrorism, vandalism, pandemics (including the COVID-19 pandemic) and similar events. Additionally, these third parties may breach their agreements with us or refuse to continue to renew their agreements on commercially reasonable terms, or at all. There can be no assurances that third parties that provide products or services to us or our users will continue to do so on acceptable terms, or at all. If any of these third parties do not adequately or appropriately provide their services or perform their responsibilities to us or our users, or if such third party partners decide to or are required by law to suspend or shut down products or services that we are relying on, we may be unable to procure alternatives in a timely and efficient manner and on acceptable terms, or at all, and we may be subject to business disruptions, losses or costs to remediate any of the deficiencies, customer dissatisfaction, reputational damage, legal or regulatory proceedings, or other adverse consequences which could harm our business.

In addition, we rely on one or more transaction protocols referred to as “smart contracts,” which include the cryptographic operations that verify and secure transactions, in connection with our digital asset products or services. A smart contract is software that digitally facilitates or enforces a rules-agreement or terms between transacting parties. If the smart contracts fail to behave as expected, suffer cybersecurity attacks or security issues, become obsolete, or encounter other issues, certain transactions may not be completed or erroneously executed, and we and our users may experience significant harm, including irretrievable loss of digital assets.

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Peer-to-peer NFT marketplaces create unique risks and challenges related to content moderation and control. If we are unable to navigate these issues, demand for the marketplace could be adversely impacted.

The creator of an NFT will often have, or purport to have, all necessary rights to the content of the NFT and can determine what rights to assign to a buyer, such as the right to display, modify, publicly perform, or copy the content. Risks associated with purchasing or selling items associated with content created by third parties through peer-to-peer transactions, include, among other things, the risk of purchasing counterfeit items or items alleged to be counterfeit, mislabeled items, items that are vulnerable to metadata decay, items on smart contracts with bugs or malware, items related to content that infringes intellectual property rights, and items that may become untransferable, inoperable or obsolete. To the extent we are directly or indirectly involved in a dispute between creators and buyers on our NFT marketplace, it could adversely affect the success of our NFT marketplace and harm our business, operating results, and financial condition.

We may also experience media, legislative, or regulatory scrutiny of our actions or decisions related to our content moderation practices with respect to our NFT marketplace either as a result of our perceived failure to respond expeditiously or appropriately to the sharing of content perceived as objectionable or as a result of our decisions to remove content or suspend participation on our NFT marketplace by persons who violate our content standards and Terms of Service. Any such negative publicity could have an adverse effect on the size, engagement, and loyalty of our user base and demand for our NFT marketplace, which could result in decreased revenue and adversely affect our business, operating results, and financial condition.

Operational Risks

Our implementation of a new ERP system may adversely affect our business and results of operations or the effectiveness of our internal controls over financial reporting.

During the third quarter of 2022, we implemented a new ERP system, SAP, as part of a plan to integrate and upgrade our systems and processes. Additional implementation activities are expected to continue in phases over the next few years. ERP implementations are complex, labor intensive and time-consuming projects and involve substantial expenditures on system software and implementation activities. The ERP system is critical to our ability to provide important information to our management, obtain and deliver products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, accurately maintain books and records, provide accurate, timely and reliable reports on our financial and operating results, and otherwise operate our business. ERP implementations also require transformation of business and financial processes in order to reap the benefits of the ERP system. Any such implementation involves risks inherent in the conversion to a new computer system, including loss of information and potential disruption to our normal operations. The implementation and maintenance of the new ERP system has required, and will continue to require, the investment of significant financial and human resources, the re-engineering of processes of our business, and the attention of many employees who would otherwise be focused on other aspects of our business. Our results of operations could be adversely affected if we experience time delays or cost overruns during the ERP implementation process, or if we are unable to reap the benefits we expect from the ERP system. Any material deficiencies in the design and implementation of the new ERP system could also result in potentially materially higher costs than we had incurred previously and could adversely affect our ability to operate our business and otherwise negatively impact our financial reporting and internal controls. Any of these consequences could have a material adverse effect on our results of operations and financial condition.

Legal and Regulatory Risk Related to our Digital Asset Initiatives

Our digital asset products and services may expose us to legal, regulatory, and other risks that could adversely affect our business, operating results, and financial condition.

As digital assets are a relatively new and emerging asset class, the regulatory, commercial, and legal framework governing digital assets and associated products and services is likely to evolve both in the U.S. and internationally and implicates issues regarding a range of matters, including, but not limited to, intellectual property rights, consumer protection, privacy and cybersecurity, anti-money laundering (“AML”), sanctions and currency, tax, money transmission, commodity, and securities law compliance. We may need to comply with new licensing or registration requirements, revise our compliance and risk mitigation measures, institute a ban on certain digital assets or transactions thereof, and/or suspend or shut down our products or services in one or more jurisdictions. We may also face substantial costs to operationalize and comply with new legal or regulatory requirements. It is difficult to predict how the legal and regulatory framework and oversight/enforcement infrastructure around digital assets will develop and how such developments will impact our business and these new product offerings since the market for digital assets, and NFTs in particular, is relatively nascent.

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Particular digital assets that we support could be deemed securities, and we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which may adversely affect our business.

We operate our digital asset-related products and services in a complex and frequently evolving regulatory environment and are subject to a wide range of laws and regulations enacted and enforced by U.S. federal, state, and local and foreign governments and regulatory authorities.

With respect to securities laws, the U.S. Securities and Exchange Commission (“SEC”), U.S. state and foreign government regulators have taken varying positions regarding whether certain digital assets fall within the definition of a “security” under U.S. federal, state or foreign securities laws, respectively. The determination as to whether a digital asset is a security is a fact-driven analysis and the outcome may be difficult to predict. Also, securities laws and regulations are constantly evolving. Accordingly, the SEC or U.S. state or foreign government regulators could take the position that certain digital assets we support through our digital asset-based products or services are deemed “securities” under its definition and interpretation. We have policies and procedures in place that are intended to enable us to make a reasonable, risk-based assessment regarding the likelihood that a particular digital asset could be deemed a security under applicable laws. These policies and procedures are not legal determinations as to whether any particular digital asset is a security under federal securities laws. However, the application of securities laws to the specific facts and circumstances of digital assets is complex and subject to change, and it is possible that regulators may disagree with our conclusions. There is no certainty that any digital assets are not securities, notwithstanding the conclusions drawn based on our risk-based assessment. We could be subject to legal or regulatory action in the event a regulatory authority or court were to determine that a digital asset offered, sold or traded on our non-custodial digital asset wallet product or NFT marketplace is a security under applicable laws, which could have an adverse impact on our business. Furthermore, to the extent that any of the digital assets we support are deemed securities, we may be required to register as a broker-dealer and/or national securities exchange with the SEC and/or foreign regulatory counterpart, or rely on an available exemption from registration.

Law enforcement and regulators may initiate investigations or litigation related to our digital asset investments, products or services.

New or revised regulations or policies affecting digital assets and blockchain technology, or new interpretations of existing laws and regulations by governmental and regulatory bodies in respect of digital assets and blockchain technology could have substantial and adverse effect on our digital asset investments, products or services. As such, we could in the future be subject to inquiries or investigations from regulators and governmental authorities, be required to divest our digital asset holdings, make product changes, restrict or discontinue product offerings, including our users’ acquisition, use or redemption of certain digital assets, and be required to implement additional and potentially costly controls. In addition, if we expand our digital asset business to new products and services, we could come under the jurisdiction of additional regulators, both with respect to jurisdiction and subject matter. Any failure or perceived failure to comply with existing or new laws, regulations, or orders of any governmental authority (including changes to or expansion of the interpretation of those laws, regulations, or orders), including those discussed in these risk factors, may (i) subject us to significant fines, penalties, criminal and civil lawsuits, enforcement proceedings, and forfeiture of significant assets, (ii) result in additional compliance and licensure requirements, increased regulatory scrutiny of our business and restrictions of our operations, and (iii) force us to modify our business practices, make product or operational changes, and/or delay planned product launches or improvements. We currently maintain policies and procedures designed to reasonably help ensure compliance with applicable laws and regulations, but there can be no assurance that our employees, contractors, or agents will not violate such laws and regulations.

Violations of law by third parties using our digital asset products or services could expose us to litigation risk and negatively impact our reputation.

We have no control over the third parties utilizing our digital asset products or services, such as digital gaming and entertainment developers and other NFT creators and sellers. Any failure or perceived failure by such third parties to comply with existing civil and criminal laws and regulations, including, but not limited to, anti-fraud and anti-financial crime laws, may also subject us to significant reputational and litigation risks, including criminal and civil lawsuits. We require third parties using our digital products or services to confirm that their digital asset activities will comply with all applicable laws and regulations in connection with their use of our digital products or services, but there can be no assurance that these third parties will do so.

Future developments regarding the treatment of digital assets under U.S. and foreign tax laws could adversely impact our business.

Current tax rules related to digital assets are in some instances unclear and require significant judgments to be made in interpretation of the law, including but not limited to the areas of income tax, information reporting, transaction level taxes and the withholding of tax at source. Additional legislation or guidance may be issued by U.S. and non-U.S. governing bodies that may differ significantly from our practices or interpretation of the law, which could have unforeseen effects on our financial condition and results of operations. ~~There~~

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Our digital asset products and services require compliance with anti-money laundering and sanctions laws and regulations.

We comply with laws and regulations related to U.S. AML and counter-terrorist financing (“CTF”) laws and regulations, enforced by FinCEN, and economic sanctions enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) in connection with our digital asset products and services. U.S. sanctions laws and regulations generally restrict dealings by persons subject to U.S. jurisdiction with certain jurisdictions that are the target of comprehensive embargoes, as well as with persons, entities, and governments identified on certain prohibited party lists. We have an OFAC compliance program in place that includes monitoring of IP addresses to identify prohibited jurisdictions and of digital wallet addresses that have either been identified by OFAC as prohibited or that otherwise are believed by us to be associated with prohibited persons or jurisdictions. Regardless, there can be no guarantee that our compliance program will prevent transactions with particular persons or addresses or prevent every potential violation of OFAC sanctions. Any present or future government inquiries relating to sanctions could result in negative consequences for us, including costs related to government investigations, financial penalties, and harm to our reputation. Further, new or revised U.S. or foreign AML, CTF or sanctions laws and regulations could require us to invest substantially in new compliance measures and that may require significant retroactive compliance efforts that could adversely affect our financial position, as well as give rise to liabilities based on our compliance program.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On May 26, 2021, we received a request from the Staff of the SEC for the voluntary production of documents and information concerning an SEC investigation into the trading activity in our securities and the securities of other companies. On August 25, 2021, the SEC issued a subpoena calling for additional documents, as a follow up to the initial request. We have completed production of the requested documents and have been ~~no material changes from~~and intend to continue cooperating fully with the ~~risk factors disclosed in our 2016 Annual Report on Form 10-K.~~

SEC Staff regarding this matter. This inquiry is not expected to adversely impact us.

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ITEM 6. EXHIBITS

Exhibit
Number

Description

Previously Filed as an Exhibit to and Incorporated by Reference From

Date Filed

3.1

Third Amended and Restated Certificate of Incorporation.

Quarterly Report on Form 10-Q for the fiscal quarter ended August 3, 2013

September 11, 2013

~~ITEM 6.~~3.2

~~EXHIBITS~~

Certificate of Amendment of the Third Amended and Restated Certificate of Incorporation.

Current Report on Form 8-K

June 3, 2022

3.3

Fifth Amended and Restated Bylaws.

Current Report on Form 8-K

March 6, 2017

10.1

Amendment #1 to Immutable X Protocol Services and License Agreement.

Filed herewith.

~~Exhibit~~

~~Number~~

~~Description~~

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾

Filed herewith.

~~31.2~~

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.⁽¹⁾

Filed herewith.

~~32.1~~

32.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

Furnished herewith.

~~32.2~~

32.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.⁽²⁾

Furnished herewith.

~~101.INS~~

101.INS

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