Thank you. Good afternoon everyone, and thank you for joining us today on our first quarter earnings call.
Joining me on today’s call is Rob Lloyd, outgoing COO and CFO who will give an overview of our first quarter results following my comments. It’s great to be with you today my first earnings call since joining GameStop in April.
As we get started, I want to thank the board for the opportunity to be here at GameStop. I appreciate the confidence they have shown in me and recognize the significance of the opportunity in front of us. I’m excited by it and extremely passionate about tackling the challenges facing us as we position GameStop to evolve for the future and protect and expand our leadership position in the video game space.
As I've been digging into our business, it’s clear to me that we need to transform to remain a viable player in our industry, which is currently undergoing meaningful technological change. And while the industry grows and attracts new customers, our recent performance shows me that we have work to do to evolve and transform. We owe it to our team to develop a better strategy and a better product for our customer.
We have hard work in front of us but we're up to the challenge, and I know the team and our great associates across the organization want to win. The challenge is a significant one. We must immediately address SG&A that’s been allowed to deleverage, execute on opportunities to optimize the current business, and develop new revenue streams for our future. Doing so will require immediate action on our part and an ongoing sense of urgency that is off the charts.
To that end, we have taken the following actions.
As you saw late last week, we solidified our go-forward leadership team. We've established a transformation office and a framework for execution. We've shown a commitment to focusing on the core elements of our business that are meaningful to our future and divesting of those that aren’t, and demonstrated that we'll have a disciplined approach to capital allocation.
I'd first like to start today by going a little deeper on each of those actions; first, putting our go-forward leadership team in place. Jim Bell joined us yesterday as our new Executive Vice President and Chief Financial Officer. And with that appointment, we announced that Rob Lloyd will be departing the Company after nearly 23 years with GameStop. Most recently, Jim served as CFO and Interim-CEO of Wok Holdings, the parent company of P.F. Chang's Pei Wei and True Food Kitchen restaurants, and led their overall strategic plan and omni-channel digital transformation.
Previously, he served as CFO and Interim CEO at Coldwater Creek, CFO of Red Lion Hotels, and held senior finance roles with Harry & David and the Gap.
We also announced the hiring of Chris Homeister as our Executive Vice President and Chief Merchandising Officer effective June 10th. Chris is not only a retail industry veteran but has experience specifically in gaming. Chris served as CEO of the tile company and previously spent over seven years at Best Buy, including roles as Senior Vice President of Digital Merchandising and Senior Vice President of Entertainment, leading the gaming business.
Finally, effective yesterday, we appointed Frank Hamlin to Executive Vice President and Chief Customer Officer. Frank, who previously served as our Senior Vice President and Chief Marketing Officer will be responsible for strategy, marketing, data analytics, loyalty platforms, and new growth concepts. Frank's an internal force for changing our business model, and I'm thrilled to elevate both his role and responsibilities.
Along with Dan Kaufman, who transitioned out of his prior role to focus his efforts full time on leading our transformation office, this rounds-out our leadership table that will guide GameStop through significant change over the next several years. I'm thrilled to welcome Jim and Chris to GameStop and congratulate Frank and Dan on their new roles. I couldn't be happier with our ability to attract leaders of this caliber who are committed to positioning GameStop for the future.
Second, our multiyear transformation process is underway.
As I mentioned, Dan Kaufman, formerly our Executive Vice President, Chief Legal and Administrative Officer, will lead the program office along with other key leaders from the business solely focused on this initiative. This will be a multi-work stream effort addressing cost and efficiency, business optimization, and new revenue streams. To aid us in our thinking and speed of execution, we've engaged a tier-one consulting group that is now fully deployed within GameStop.
However, the GameStop organization will own and drive the process.
As part of the transformation and as you heard in April, the team introduced an operating profit improvement initiative. Shortly after my arrival, I began to form a team of key leaders to launch what we now refer to as GameStop reboot. This is a holistic and extensive review of all aspects of our business and how we can transform it. This is going to be a critical piece of our transformation. It is not simply a cost-cutting initiative though there will be an element of that to the overall process.
I expect this process to drive margin improvement, including some better sourcing, pricing and promotion, and leveraging our scale. The goal is to focus on our business today, while we develop the businesses that will drive tomorrow.
Over the next several quarters, this is my top priority, and I intend to be transparent about our progress with all of our stakeholders, including the investment community.
I already know there are areas of the business that we can execute better, and I'm confident that this process will help us improve our organization. The importance of this program cannot be overstated, and it's safe to say the aspirations for GameStop reboot go well beyond our previously announced $100 million operation profit improvement goal.
However, we cannot simply optimize our way back to growth. Rather, we must transform our business.
Throughout our transformation process, we'll be deliberate and act with urgency. We’ll seek efficiencies in our operations to improve our performance in the near term, while we identify, test, and implement these initiatives that will help shape our strategy for the future. Simply stated, I am committed to addressing the foundational areas of our business that present immediate opportunities and quickly. I’ve a few thoughts on where we see opportunities in the business.
Our stores, I believe we can leverage and improve the store experience. Conceptually speaking, we know that 20% of our SKUs drive 80% of our business. Space allocation, therefore, is a near term opportunity. We need to de-clutter our stores and focus on the key SKUs that are driving our business.
We also need to ensure that we have the proper inventory levels and merchandising behind those SKUs.
Collectibles are a natural extension, and we’ll continue to get better at that piece of the business through inventory optimization and expand the assortment of exclusive products that our customers desire.
We are testing several initiatives focused on experiential elements in our stores that we believe will drive growth in the long term. These tests are designed to focus on several elements, including gaming, new and pre-owned, collectibles, immersive and interactive experiences, and pop culture.
We are committed to testing, learning, and implementing our transformation quickly through our think big, start small, scale quickly, all of the disciplined approach to measuring results and ROI. In the coming quarters, we’re share more about this initiative in how we believe we can improve our operating model.
Merchandising opportunities, I've told our team that we don’t have a real estate problem.
We have a merchandise allocation opportunity that we need to address in a big way. This can be done with existing resources of very minimal investment, and we'll go a long way improving the customer experience.
Here's what that entails. Focus on driving accessories, software, and hardware, even as we come to what appears to be the end of the current console cycle. Focus on pricing and promotion optimization as part of our larger profit improvement initiative. We need a cohesive pricing strategy that clearly communicates value to our customers across pre-owned and new products, while playing within the parameters of our vendors and reflecting the value of their innovative products.
Coming back to the immediate actions we have taken to address the business.
Third, we've shown the commitment to being laser-focused on the core elements of our business that are important to our future, while divesting of the things that are not.
As you've seen, we’re in the process of divesting of our Simply Mac business, and anticipate the sales closing late second quarter or early third quarter. This marks the completion of our technology brands divesture.
We’re also announcing today we were continuing to reorganize our ThinkGeek business. We're further streamline that business by transitioning the thinkgeek.com platform within our GameStop omni-channel experience. We've very successful collectibles business and need to harness the power of the team and the investment made in that team going forward.
Fourth, we'll have a disciplined approach to capital allocation. We announced earlier today that our board has eliminated our quarterly dividend. The board did not take this decision lightly, and we remain committed to return capital to shareholders when it's prudent. That said, in the near term we are confident that redirecting capital towards debt reduction and reserving capital for successful transformation initiatives will put us in a better position to drive increased shareholder value over the long term.
Our cash position remains strong as is our ability to drive cash well. Along with our recent $350 million debt reduction, this redeployment of capital will further increase our financial flexibility and expand our options.
As we've outlined today, the initiatives and opportunities in front of us are compelling, and we want to give our team maximum flexibility as we execute on this.
These efforts are centered around transformation of our core business, not acquisitions or further diversification outside the video game business. Rest assured, I'm committed to being a good steward of your capital going forward, and returning capital to shareholders remains a top priority.
I'm clear right about the depth of the challenge in front of us.
We have work to do. But I believe we have significant assets that we can leverage. And we're strong at GameStop in part because of the industry. We operate in a strong, exciting and dynamic space. Participants in video gaming are growing in numbers and come from a wide range of demographics. They’re passionate about their games, franchises and competing and winning.
Against this backdrop and combined with our impressive customer base, GameStop occupies a sweet spot.
Importantly, I believe that we can parlay all the attributes that make us an industry leader today to become the leader of tomorrow and beyond. I believe our store experience, specifically the customer service offered by our store team, is unparalleled. It will be a tremendous asset as we transform our business.
Our associates are extremely knowledgeable and the resiliency and passion are second to none. I've conducted numerous store visits and witnessed store associates interact on the first name basis with the regular customers. It's obvious to me that their dedication to providing customers with outstanding service and knowledge is fueled by their own love and passion for all things video games.
It's paramount that we continue to provide our associates with all the right tools to keep delivering this excellent customer experience.
We have an expansive footprint that provides us with significant access to our customers. And even with its scale, we have flexibility with the lease obligations with an average remaining lease life of two years. I also believe that our PowerUp Rewards program was roughly 60 million members is a huge asset that we can leverage going forward.
Knowing our loyal customers well, anticipating their needs and meeting them what they want to do business, regardless of the format or platform will be a major point of focus going forward.
For example, we understand that digital will continue to be a significant part of the video game industry. GameStop needs to be there and I'm committed to ensuring that we will be.
We’re evaluating new revenue streams and how we can and should participate in the digital economy, particularly given the significant number of loyal customers we bring the publishers and console makers. This will take time, but is a necessity to enable us to continue maintaining our position as the leader in the video game space.
Another example of meeting customers where they are is our participation in eSports through partnerships with Infinite eSports and Entertainment, Envy Gaming and several others.
Our recent partnership with Complexity Gaming and the opening of the GameStop performance center in Frisco, Texas, at the home of the Dallas Cowboys, will enable us to better support our customers around the world and help them be the best gamers they can be. These are just two of the many large-able assets that we can deploy as we seek to transform the business for the future.
As we transform, we will think big, start small, move quickly and responsibly.
While we re-imagine the future of GameStop, our mission in the immediate term is to optimize the current business, so that we can fuel long-term growth. A bifocal approach to run the business means focusing on the existing physical video game and collectibles business as we also develop growth opportunities and new revenue streams that will evolve our business model.
In closing, I'm very excited to be at GameStop. It's a pivotal time for the company and energized by the many opportunities I see before us even in my short time here.
We have a tremendous chance to shape the future of GameStop in this evolving and dynamic industry. The changes that have occurred in these first 45 days are important steps in our transformation, but also indicative of the pace of play that I expect from the team that our board expects of me and more broadly with our shareholder base should expect of us.
I'm committed to being transparent as we transform the business, and we'll update you every step along the way. On our next earnings call in September, we will be able to provide additional details on what we're testing and the progress that we've made in our transformation.
I'd now like to turn the call over to Rob Lloyd for recap of the quarter. Thank you.