Gamestop Corporation (GME)

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GameStop (GME)

Q4 2010 Earnings Call

March 24, 2011 11:00 am ET

Executives

Michael Mauler - Executive Vice President of International

Robert Lloyd - Chief Financial Officer and Executive Vice President

Daniel Dematteo - Executive Chairman

Tony Bartel - President

J. Raines - Chief Executive Officer

Analysts

Michael Hickey - Janco Partners, Inc.

Anthony Wible - Janney Montgomery Scott LLC

David Magee - SunTrust Robinson Humphrey, Inc.

Arvind Bhatia - Sterne Agee & Leach Inc.

William Armstrong - CL King & Associates, Inc

Mark-Andre Saucier-Nadeau

Colin Sebastian - Lazard Capital Markets LLC

Brian Nagel - Oppenheimer & Co. Inc.

Presentation

Operator

Good morning. Welcome to GameStop Corp.'s Fourth Quarter and Fiscal Year Ending 2010 Earnings Call. [Operator Instructions] I would like to remind you that this call is covered by the Safe Harbor disclosure contained in GameStop's public documents and is the property of GameStop. It is not for rebroadcast or use by any other party without the prior written consent of GameStop.

At this time, I would like to turn the call over to Dan Dematteo, Executive Chairman of GameStop Corp. Please go ahead, sir.

Daniel Dematteo

Thank you and good morning. And thank you for attending today's call. With me today are Paul Raines, our CEO; Tony Bartel, President; Rob Lloyd, EVP and CFO; and Mike Mauler, our EVP International.

This morning, we announced the final financial results for 2010 and our forecast for 2011. 2010 was a record year at GameStop for both sales and earnings and a record fourth quarter. We are pleased that our new initiatives have produced results by growing market share and delivering a new revenue stream of digital earnings. At our Investor Day conference on April 1, we will quantify the digital earnings growth and forecast where we believe they will grow to in the future. And we have been able to make these investments and continue to return value to shareholders through stock repurchases and debt retirement. Rob will discuss the financial results in more detail.

In 2011, we expect more of the same, continue our investment in our strategic initiatives in order to grow market share and develop digital earnings. We believe that the GameStop brand is uniquely positioned to deliver gains to our customers no matter where or how they play: on their console, through box product and DLC, on their PCs through digital downloads or browser game play via Kongregate, or through an app store delivering games to their mobile devices. And no matter how they play, they will be earning points and getting benefits from being enrolled in our PowerUp Rewards program. Again, the details of how this all works will be further discussed at our investor conference. With that, I'll turn it over to Paul for his comments.

J. Raines

Thanks, Dan. As I begin my remarks, I would like to thank all of our GameStop associates worldwide who continue to serve our customers with the very best customer service, value and assortment in video gaming.

As we have discussed on previous calls, GameStop continues to execute the strategic plan we developed over two years ago to fulfill our vision of being the premier multichannel player in video gaming. In August, we announced the investment of $0.03 of earnings per share in the third quarter to accelerate the implementation of our strategic initiatives ahead of holiday, and we are pleased to see the leverage those initiatives are giving us in the marketplace. The growth of our online websites, digital sales in store and our PowerUp Rewards program are combining with our traditional strengths in merchandising and operations to create a shopping experience for consumers unlike any other in video gaming.

Investing in our strategy paid off in the fourth quarter, and we believe will continue to do so in 2011. In terms of console gaming, we continue to gain share during this holiday, establishing new market share records for GameStop for both the holiday quarter and year. Hot titles brought core gamers out while in-store digital sales of DLC extended the play beyond the first campaign. As GameStop introduced console digital DLC for the first time this holiday, thousands of consumers bought both physical games and DLC in our stores. The launch of Microsoft's Kinect and Sony's Move provided new options for gameplay and consumers made the Kinect the must-have gift for holiday.

Our Pre-owned business grew to a record volume in 2010 and Rob Lloyd will give you details on that growth. Organizationally, we have restructured our merchandising teams to drive greater focus from the New team on emerging digital channels like DLC and greater loyalty and other marketing for the Pre-owned business. We are focused on a strategy to grow the Used business aggressively and will be sharing the details of that strategy at our upcoming Investor Day in April.

In our international businesses, we saw improvement in Europe's performance versus prior year with continued challenges in Australia and Canada. In 2011, we expect single-digit growth in revenues and operating earnings in each international segment. Our strategy is to opportunistically grow in our mature and high potential markets; however, in struggling markets, we are focused on restructuring and closing poorly performing stores with a focus on driving down costs and increasing return on invested capital. We continue to see growth in our Pre-owned sales and margins internationally. We are also in the process of rolling out key digital initiatives in our international businesses, and during 2010, we expanded our e-commerce business by adding sites in Germany, Ireland and Spain.

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