SEC Filing | Gamestop Corp.

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gme-20211030

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 30, 2021


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NO. 1-32637

https://cdn.kscope.io/5e41bef0902527ace44cb22f4a4a4f1f-gme-20211030_g1.jpg

GameStop Corp.

(Exact name of registrant as specified in its charter)


Delaware		20-2733559
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

625 Westport Parkway		76051
Grapevine,	Texas
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(817) 424-2000

Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A Common Stock

GME

NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of $.001 par value Class A Common Stock outstanding as of December 1, 2021: 76,350,781

TABLE OF CONTENTS



Part I — FINANCIAL INFORMATION
		Page No.
Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets — As of October 30, 2021, October 31, 2020 and January 30, 2021	1

	Consolidated Statements of Operations — For the three and nine months ended October 30, 2021 and October 31, 2020	2

	Consolidated Statements of Comprehensive Loss — For the three and nine months ended October 30, 2021 and October 31, 2020	3

	Consolidated Statements of Cash Flows — For the nine months ended October 30, 2021 and October 31, 2020	4

	Consolidated Statements of Stockholders’ Equity — For the three and nine months ended October 30, 2021 and October 31, 2020	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	21

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 3.	Defaults Upon Senior Securities	32

Item 4.	Mine Safety Disclosures	32

Item 5.	Other Information	32

Item 6.	Exhibits	32

SIGNATURES		34

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GAMESTOP CORP.

CONSOLIDATED BALANCE SHEETS

(in millions, except par value per share)

(unaudited)


	October 30, 2021		October 31, 2020		January 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,413.0	$	445.9	$	508.5
Restricted cash	39.5		140.7		110.0
Receivables, net	83.4		77.6		105.3
Merchandise inventories	1,140.9		861.0		602.5
Prepaid expenses and other current assets	236.3		126.7		224.9
Total current assets	2,913.1		1,651.9		1,551.2
Property and equipment, net of accumulated depreciation of $1,122.0, $1,175.3 and $1,117.7, respectively	179.6		193.0		201.2
Operating lease right-of-use assets	615.8		666.7		662.1
Deferred income taxes	—		29.2		—
Long-term restricted cash	15.6		16.0		16.5
Other noncurrent assets	37.9		44.6		41.6
Total assets	$	3,762.0	$	2,601.4	$	2,472.6

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	711.5	$	440.2	$	341.8
Accrued liabilities and other current liabilities	608.5		654.1		626.8
Current portion of operating lease liabilities	211.9		212.9		227.4
Short-term debt, including current portion of long-term debt, net	1.4		244.5		121.7
Borrowings under revolving line of credit	—		25.0		25.0
Total current liabilities	1,533.3		1,576.7		1,342.7
Long-term debt, net	44.8		216.0		216.0
Operating lease liabilities	409.7		456.7		456.7
Other long-term liabilities	19.3		19.8		20.5
Total liabilities	2,007.1		2,269.2		2,035.9
Stockholders’ equity:
Class A common stock — $.001 par value; 300 shares authorized; 75.9, 65.2 and 65.3 shares issued and outstanding, respectively	0.1		0.1		0.1
Additional paid-in capital	1,567.9		5.1		11.0
Accumulated other comprehensive loss	(54.2)		(67.4)		(49.3)
Retained earnings	241.1		394.4		474.9
Total stockholders’ equity	1,754.9		332.2		436.7
Total liabilities and stockholders’ equity	$	3,762.0	$	2,601.4	$	2,472.6

See accompanying notes to consolidated financial statements.

Table of Contents

GAMESTOP CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net sales	$	1,296.6	$	1,004.7	$	3,756.8	$	2,967.7
Cost of sales	978.0		728.4		2,787.2		2,156.8
Gross profit	318.6		276.3		969.6		810.9
Selling, general and administrative expenses	421.5		360.4		1,170.7		1,095.1
Asset impairments	—		—		0.6		4.8
Gain on sale of assets	—		(21.1)		—		(32.4)
Operating loss	(102.9)		(63.0)		(201.7)		(256.6)
Interest income	—		(0.3)		(0.2)		(1.6)
Interest expense	0.8		10.0		26.2		25.5
Loss from continuing operations before income taxes	(103.7)		(72.7)		(227.7)		(280.5)
Income tax expense (benefit)	1.7		(53.9)		6.1		14.4
Net loss from continuing operations	(105.4)		(18.8)		(233.8)		(294.9)
Loss from discontinued operations, net of tax	—		—		—		(0.9)
Net loss	$	(105.4)	$	(18.8)	$	(233.8)	$	(295.8)



Basic loss per share:
Continuing operations	$	(1.39)	$	(0.29)	$	(3.27)	$	(4.54)
Discontinued operations	—		—		—		(0.01)
Basic loss per share	$	(1.39)	$	(0.29)	$	(3.27)	$	(4.56)

Diluted loss per share:
Continuing operations	$	(1.39)	$	(0.29)	$	(3.27)	$	(4.54)
Discontinued operations	—		—		—		(0.01)
Diluted loss per share	$	(1.39)	$	(0.29)	$	(3.27)	$	(4.56)

Weighted-average shares outstanding:
Basic	75.9		65.2		71.5		64.9
Diluted	75.9		65.2		71.5		64.9

See accompanying notes to consolidated financial statements.

Table of Contents

GAMESTOP CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

(unaudited)


	Three Months Ended				Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Net loss	$	(105.4)	$	(18.8)	$	(233.8)	$	(295.8)
Other comprehensive income (loss):
Foreign currency translation adjustment	2.1		(3.5)		(4.9)		11.4
Total comprehensive loss	$	(103.3)	$	(22.3)	$	(238.7)	$	(284.4)

See accompanying notes to consolidated financial statements.

Table of Contents

GAMESTOP CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Nine Months Ended
	October 30, 2021		October 31, 2020
Cash flows from operating activities:
Net loss	$	(233.8)	$	(295.8)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	53.2		61.1
Loss (gain) on retirement of debt	18.2		(1.5)
Asset impairments	0.6		4.8
Stock-based compensation expense	20.7		6.1
Deferred income taxes	—		45.4
Loss (gain) on disposal of property and equipment, net	1.9		(30.6)
Other, net	(1.4)		4.1
Changes in operating assets and liabilities:
Receivables, net	21.0		65.8
Merchandise inventories	(545.2)		11.6
Prepaid expenses and other current assets	(5.1)		(2.9)
Prepaid income taxes and income taxes payable	(12.9)		11.7
Accounts payable and accrued liabilities	376.9		78.9
Operating lease right-of-use assets and lease liabilities	(18.1)		1.1
Changes in other long-term liabilities	—		(0.9)
Net cash flows used in operating activities	(324.0)		(41.1)
Cash flows from investing activities:
Capital expenditures	(40.7)		(32.6)
Proceeds from sale of property and equipment	—		95.5
Other	(0.4)		0.4
Net cash flows (used in) provided by investing activities	(41.1)		63.3
Cash flows from financing activities:
Proceeds from issuance of common stock, net of costs	1,672.8		—
Proceeds from French term loans	—		47.1
Borrowings from the revolver	—		150.0
Repayments of revolver borrowings	(25.0)		(125.0)
Payments of senior notes	(307.4)		(5.3)
Settlement of stock-based awards	(136.6)		(1.0)
Other	(0.1)		(0.3)
Net cash flows provided by financing activities	1,203.7		65.5
Exchange rate effect on cash, cash equivalents and restricted cash	(5.5)		1.4
Increase in cash, cash equivalents and restricted cash	833.1		89.1
Cash, cash equivalents and restricted cash at beginning of period	635.0		513.5
Cash, cash equivalents and restricted cash at end of period	$	1,468.1	$	602.6

See accompanying notes to consolidated financial statements.

Table of Contents

GAMESTOP CORP.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except for per share data)

(unaudited)


	Class A Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at January 30, 2021	65.3	$	0.1	$	11.0	$	(49.3)	$	474.9	$	436.7
Net loss	—	—		—		—		(66.8)		(66.8)
Issuance of common stock, net of cost	3.5	—		551.7		—		—		551.7
Foreign currency translation	—	—		—		2.1		—		2.1
Stock-based compensation expense	—	—		5.7		—		—		5.7
Settlement of stock-based awards	0.5	—		(49.9)		—		—		(49.9)
Balance at May 1, 2021	69.3	$	0.1	$	518.5	$	(47.2)	$	408.1	$	879.5
Net loss	—	—		—		—		(61.6)		(61.6)
Issuance of common stock, net of cost	5.0	—		1,121.1		—		—		1,121.1
Foreign currency translation	—	—		—		(9.1)		—		(9.1)
Stock-based compensation expense	—	—		8.8		—		—		8.8
Settlement of stock-based awards	1.6	—		(86.7)		—		—		(86.7)
Balance at July 31, 2021	75.9	$	0.1	$	1,561.7	$	(56.3)	$	346.5	$	1,852.0
Net loss	—	—		—		—		(105.4)		(105.4)
Foreign currency translation	—	—		—		2.1		—		2.1
Stock-based compensation expense	—	—		6.2		—		—		6.2
Balance at October 30, 2021	75.9	$	0.1	$	1,567.9	$	(54.2)	$	241.1	$	1,754.9


	Class A Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total Stockholders' Equity
	Shares	Amount
Balance at February 1, 2020	64.3	$	0.1	$	—	$	(78.8)	$	690.2	$	611.5
Net loss	—	—		—		—		(165.7)		(165.7)
Foreign currency translation	—	—		—		(12.1)		—		(12.1)
Stock-based compensation expense	—	—		1.8		—		—		1.8
Settlement of stock-based awards	0.3	—		(0.5)		—		—		(0.5)
Balance at May 2, 2020	64.6	$	0.1	$	1.3	$	(90.9)	$	524.5	$	435.0
Net loss	—	—		—		—		(111.3)		(111.3)
Foreign currency translation	—	—		—		27.0		—		27.0
Stock-based compensation expense	—	—		2.1		—		—		2.1
Settlement of stock-based awards	0.6	—		(0.5)		—		—		(0.5)
Balance at August 1, 2020	65.2	$	0.1	$	2.9	$	(63.9)	$	413.2	$	352.3
Net loss	—	—		—		—		(18.8)		(18.8)
Foreign currency translation	—	—		—		(3.5)		—		(3.5)
Stock-based compensation expense	—	—		2.2		—		—		2.2
Balance at October 31, 2020	65.2	$	0.1	$	5.1	$	(67.4)	$	394.4	$	332.2

See accompanying notes to consolidated financial statements.

Table of Contents

GAMESTOP CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

1. General Information

The Company

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) offers games, entertainment products and technology through its e-commerce properties and stores.

We operate our business in four geographic segments: United States, Canada, Australia and Europe. The information contained in these consolidated financial statements refers to continuing operations unless otherwise noted.

Basis of Presentation and Consolidation

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements included herein reflect all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information for the periods presented. These 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 the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they exclude certain disclosures required under GAAP for complete consolidated financial statements.

The accompanying consolidated financial statements and notes are unaudited. The consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the 52 weeks ended January 30, 2021, as filed with the Securities and Exchange Commission ("SEC") on March 23, 2021 (the “2020 Annual Report on Form 10-K”). Due to the seasonal nature of our business, our results of operations for the nine months ended October 30, 2021 are not indicative of our future results for the 52 weeks ending January 29, 2022. Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Each of our fiscal years ending January 29, 2022 and January 30, 2021 consist of 52 weeks. All three and nine month periods presented herein contain 13 weeks and 39 weeks, respectively. All references to years, quarters and months relate to fiscal periods rather than calendar periods. Our business, like that of many retailers, is seasonal, with the major portion of the net sales realized during the fourth quarter, which includes the holiday selling season.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying footnotes. We regularly evaluate the estimates related to our assets and liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses. In preparing these consolidated financial statements, we have made our best estimates and judgments of certain amounts recognized in the consolidated financial statements, giving due consideration to materiality. Changes in the estimates and assumptions that we have used could have a significant impact on our financial results. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

There have been no material changes to our significant accounting policies included in Note 1, "Nature of Operations and Summary of Significant Accounting Policies," in the 2020 Annual Report on Form 10-K.

At-the-Market Equity Offering

During the nine months ended October 30, 2021, we sold an aggregate of 8,500,000 shares of our common stock under our at-the market equity offering program (the "ATM Transactions"). We generated $1.68 billion in aggregate gross proceeds from sales under the ATM Transactions and paid an aggregate of $10.1 million in commissions to the sales agent, among other legal and administrative fees. These commissions and fees are recognized in additional paid-in capital on our Consolidated Balance Sheets and selling, general and administration expenses in our Consolidated Statements of Operations.

Discontinued Operations and Dispositions

The historic results of our Spring Mobile business, sold during the fourth quarter of 2018, are presented as discontinued operations, and consist of residual wind-down costs for all periods presented. The net loss from discontinued operations for the nine months ended October 31, 2020 consisted of $1.2 million and $0.3 million in selling, general and administrative expenses and income tax benefit, respectively, in our Consolidated Statements of Operations.

Table of Contents

GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This standard is intended to simplify the accounting and disclosure requirements for income taxes by eliminating various exceptions in accounting for income taxes and clarifying and amending existing guidance to improve consistency in application of ASC 740. The provisions of ASU 2019-12 are effective for years beginning after December 15, 2021, with early adoption permitted. We do not expect the adoption of this ASU to result in a material impact on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This standard provides practical expedients for contract modifications with the transition from reference rates, such as LIBOR, that are expected to be discontinued. This guidance is applicable for our revolving line of credit, which uses LIBOR as a reference rate. The provisions of ASU 2020-04 are effective as of March 12, 2020 and may be adopted prospectively through December 31, 2022. We do not expect the adoption of this ASU to result in a material impact on our consolidated financial statements.

3. Revenue

The following table presents net sales by significant product category:


	Three Months Ended				Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Hardware and accessories (1)	$	669.9	$	413.4	$	1,983.0	$	1,368.1
Software (2)	434.5		444.4		1,229.0		1,247.9
Collectibles	192.2		146.9		544.8		351.7
Total	$	1,296.6	$	1,004.7	$	3,756.8	$	2,967.7

__________________________________________________

(1) Includes sales of new and pre-owned hardware, accessories, hardware bundles in which hardware and digital or physical software are sold together in a single SKU, interactive game figures, strategy guides, warranties, mobile and consumer electronics.

(2) Includes sales of new and pre-owned video game software, digital software, and PC entertainment software.

See N ote 8, "Segment Information," for net sales by geographic location.

Performance Obligations

We have arrangements with customers where our performance obligations are satisfied over time, which primarily relate to extended warranties and our Game Informer® magazine. We expect to recognize revenue in future periods for remaining performance obligations we have associated with unredeemed gift cards, trade-in credits, reservation deposits and our PowerUp Rewards loyalty program (collectively, "unredeemed customer liabilities"), extended warranties and subscriptions to our Game Informer® magazine. These performance obligations are recognized in accrued liabilities and other current liabilities on our Consolidated Balance Sheets.

Performance obligations associated with unredeemed customer liabilities are primarily satisfied at the time customers redeem gift cards, trade-in credits, customer deposits or loyalty program points for products that we offer. Unredeemed customer liabilities are generally redeemed within one year of issuance. As of October 30, 2021 and October 31, 2020, our unredeemed customer liabilities totaled $226.9 million and $326.2 million, respectively.

We offer extended warranties on certain new and pre-owned products with terms generally ranging from 12 to 24 months, depending on the product. Revenues for extended warranties sold are recognized on a straight-line basis over the life of the contract. As of October 30, 2021 and October 31, 2020, our deferred revenue liability related to extended warranties totaled $66.7 million and $47.7 million, respectively.

Performance obligations associated with subscriptions to Game Informer® magazine are satisfied when periodic magazines are delivered in print form or made available in digital format. The significant majority of customer subscriptions are annual. As of October 30, 2021 and October 31, 2020, we had deferred revenue of $45.1 million and $30.7 million, respectively, associated with our Game Informer® magazine.

Significant Judgments and Estimates

We accrue PowerUp Rewards loyalty points at the estimated retail price per point, net of estimated breakage, which can be redeemed by loyalty program members for products we offer. The estimated retail price per point is based on the actual historical retail prices of product(s) purchased through the redemption of loyalty points. We estimate breakage of loyalty points and unredeemed gift cards based on historical redemption rates.

Table of Contents

GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

Contract Balances

Our contract liabilities primarily consist of unredeemed customer liabilities and deferred revenues associated with gift cards, extended warranties and subscriptions to Game Informer® magazine.

The following table presents a rollforward of our contract liabilities:



	October 30, 2021		October 31, 2020
Contract liability beginning balance	$	348.2	$	339.2

Increase to contract liabilities (1)	680.1		562.2
Decrease to contract liabilities (2)	(688.9)		(496.5)
Other adjustments (3)	(0.7)		(0.3)
Contract liability ending balance	$	338.7	$	404.6

__________________________________________________

(1) Includes issuances of gift cards, trade-in credits and loyalty points, new reservation deposits, new subscriptions to Game Informer® and extended warranties sold.

(2) Includes redemptions of gift cards, trade-in credits, loyalty points and customer deposits and revenues recognized for Game Informer® and extended warranties. During the nine months ended October 30, 2021, there were $41.6 million of gift cards redeemed that were outstanding as of January 30, 2021. During the nine months ended October 31, 2020, there were $36.6 million of gift cards redeemed that were outstanding as of February 1, 2020.

(3) Primarily includes foreign currency translation adjustments.

4. Fair Value Measurements and Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Applicable accounting standards require disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included in Level 1 for the asset or liability, either directly or indirectly through market-corroborated inputs. Level 3 inputs are unobservable inputs for the asset or liability reflecting our assumptions about pricing by market participants.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis include our foreign currency contracts, Company-owned life insurance policies with a cash surrender value, and certain nonqualified deferred compensation liabilities.

We value our foreign currency contracts, life insurance policies with cash surrender values and certain nonqualified deferred compensation liabilities based on Level 2 inputs using quotations provided by major market news services, such as Bloomberg, and industry-standard models that consider various assumptions, including quoted forward prices, time value, volatility factors, and contractual prices for the underlying instruments, and other relevant economic measures, all of which are observable in active markets. When appropriate, valuations are adjusted to reflect credit considerations, generally based on available market evidence.

The following table presents our assets and liabilities measured at fair value on a recurring basis, which utilize Level 2 inputs:


	October 30, 2021		October 31, 2020		January 30, 2021
Assets
Foreign currency contracts(1)	$	4.1	$	1.3	$	2.5
Company-owned life insurance(2)	3.0		3.2		2.7
Total assets	$	7.1	$	4.5	$	5.2
Liabilities
Foreign currency contracts(3)	$	0.1	$	3.2	$	2.4
Nonqualified deferred compensation(3)	0.6		1.0		0.6

Total liabilities	$	0.7	$	4.2	$	3.0

__________________________________________________

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GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

(1) Recognized in prepaid expenses and other current assets on our Consolidated Balance Sheets.

(2) Recognized in other noncurrent assets on our Consolidated Balance Sheets.

(3) Recognized in accrued liabilities and other current liabilities on our Consolidated Balance Sheets.

We use forward exchange contracts to manage currency risk primarily related to intercompany loans and third party accounts payable denominated in non-functional currencies. These foreign currency contracts are not designated as hedges and, therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the re-measurement of related balances denominated in foreign currencies. The total gross notional value of derivatives related to our foreign currency contracts was $178.7 million, $262.3 million and $206.9 million as of October 30, 2021, October 31, 2020 and January 30, 2021, respectively.

The following table presents activity related to the trading of derivative instruments and the offsetting impact of related balances denominated in foreign currencies recognized in selling, general and administrative expense in our Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended
	October 30, 2021		October 31, 2020		October 30, 2021		October 31, 2020
Gains (Losses) on changes in fair value of derivative instruments	$	5.6	$	0.6	$	7.2	$	(4.6)
(Losses) gains on re-measurement of intercompany loans and third-party accounts payable denominated in foreign currencies	(4.3)		(0.5)		(4.9)		4.7
Net gains (losses)	$	1.3	$	0.1	$	2.3	$	0.1

We are exposed to counterparty credit risk on all of our derivative financial instruments and cash equivalent investments. We manage counterparty risk according to the guidelines and controls established under our comprehensive risk management and investment policies. We continuously monitor our counterparty credit risk and utilize a number of different counterparties to minimize our exposure to potential defaults.

Assets that are Measured at Fair Value on a Nonrecurring Basis

Assets that are measured at fair value on a nonrecurring basis relate primarily to property and equipment, operating lease right-of-use ("ROU") assets and other intangible assets, which are remeasured when the estimated fair value is below its carrying value. When we determine that impairment has occurred, the carrying value of the asset is reduced to its fair value.

During the nine months ended October 30, 2021 and October 31, 2020, we recognized impairment charges totaling $0.6 million and $1.6 million, respectively, associated with store-level ROU and property and equipment assets to reflect their fair values. During the nine months ended October 31, 2020, we also recognized impairment charges of $3.2 million related to our corporate aircraft to reflect its fair value of $8.6 million before the sale of the aircraft on June 5, 2020.

Other Fair Value Disclosures

The carrying values of our cash equivalents, net receivables, accounts payable and short-term borrowings approximate their fair values due to their short-term maturities.

As of October 30, 2021, our government-subsidized low interest French term loans due October 2022 through October 2026 ("French Term Loans") had a carrying value of $46.2 million and a fair value of $38.5 million. The fair values of our French Term Loans were estimated based on a model that discounted future principal and interest payments at interest rates available to us at the end of the period for similar debt of the same maturity, which is a Level 2 input as defined by the fair value hierarchy.

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GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

5. Debt

The following table presents the carrying value of our debt:


	October 30, 2021		October 31, 2020		January 30, 2021
Revolving credit facility due 2022	$	—	$	25.0	$	25.0
French Term Loans	46.2		46.6		48.6

6.75% Senior Notes due 2021	—		198.2		73.2
10.00% Senior Notes due 2023	—		216.4		216.4
Less: Senior Notes unamortized debt financing costs	—		(0.7)		(0.5)
Total debt, net	$	46.2	$	485.5	$	362.7
Less: short-term debt and current portion of long-term debt(1)	1.4		269.5		146.7
Long-term debt, net	$	44.8	$	216.0	$	216.0

______________________________________________________________

(1) Represents the current portion of the French Term Loans and the 6.75% Senior Notes due 2021 ("2021 Senior Notes"), net of the associated unamortized debt financing costs. Prior periods include loan advances under our asset-based revolving credit facility due November 2022 ("Revolver").

2021 Debt Payments

On March 15, 2021, we repaid at maturity $73.2 million outstanding principal amount of our 2021 Senior Notes.

On April 30, 2021, we completed the voluntary early redemption of $216.4 million outstanding principal amount of our 10.00% Senior Notes due 2023 ("2023 Senior Notes"). This voluntary early redemption covered the entire amount of then outstanding 2023 Senior Notes, which represented all of our long-term debt. In connection with the voluntary early redemption of our 2023 Senior Notes, we paid approximately $219.1 million in aggregate consideration, including accrued and unpaid interest. In connection with the voluntary early redemption of our 2023 Senior Notes, we paid a $17.8 million make-whole premium which is recognized in interest expense in our Consolidated Statements of Operations. Additionally, we accelerated amortization of $0.4 million deferred financing costs associated with our 2023 Senior Notes.

French Term Loans

During 2020, our French subsidiary, Micromania SAS, entered into six separate unsecured term loans for a total of €40.0 million, or $46.2 million, as of October 30, 2021. In the second quarter of 2021, at the request of Micromania SAS, these term loans were extended for five years, with an amortization plan for the principal starting in October 2022. In connection with the extension, the interest rate increased from 0.0% to 0.7% for three of the term loans totaling €20.0 million, and 1% for the remaining three term loans totaling €20.0 million. The French government has guaranteed 90% of the term loans pursuant to a state guaranteed loan program instituted in connection with the COVID-19 pandemic.

Each of Micromania SAS's term loans, as described above, restrict the ability of Micromania SAS to make distributions and loans to its affiliates, and include various events that would result in the automatic acceleration of the loans thereunder, including failure to pay any principal or interest when due, acceleration of other indebtedness, a change of control and certain bankruptcy, insolvency or receivership events.

Revolving Credit Facility

Through November 3, 2021, we maintained the Revolver with a borrowing base capacity up to $420 million and a maturity date of November 2022. The Revolver also included a $200 million expansion feature, a $100 million letter of credit sublimit, and allowed for an incremental $50 million first-in, last-out facility. The applicable margins for prime rate loans ranged from 0.25% to 0.50% and, for the London Interbank Offered Rate ("LIBOR") loans, ranged from 1.25% to 1.50%. The Revolver was secured by substantially all of the assets of the Company and its domestic subsidiaries. As of October 30, 2021, the applicable margin was 0.25% for prime rate loans and 1.25% for LIBOR loans.

The agreement governing our Revolver placed certain restrictions on us and our subsidiaries, including, among others, limitations on asset sales, additional liens, investments, incurrence of additional debt and share repurchases. Additionally, the agreement contained customary events of default, including, among others, payment defaults, breaches of covenants and certain events of bankruptcy, insolvency and reorganization. The Revolver was subject to a fixed charge coverage ratio covenant if availability under the Revolver was below a certain amount (the "Availability Reduction").

As of October 30, 2021, we had no borrowings outstanding under the Revolver. During the first quarter of 2021, we repaid $25.0 million in borrowings under the Revolver. As of October 30, 2021, total availability under the Revolver after giving effect to the

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GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

Availability Reduction was $202.4 million, with no outstanding borrowings and outstanding standby letters of credit of $57.9 million. As of October 30, 2021, we were in compliance with all covenants in the Revolver.

New Revolving Credit Facility

On November 3, 2021, we entered into an asset-based secured revolving credit facility (the "New Revolver"). The New Revolver provides for a borrowing capacity of $500 million with a maturity date of November 3, 2026. The New Revolver includes a $50 million swing loan revolving sub-facility, a $50 million Canadian revolving sub-facility, and a $250 million letter of credit sublimit. Borrowings under the New Revolver accrue interest at an adjusted LIBOR rate plus an applicable margin (ranging from 1.25% to 1.50%) or an adjusted prime rate plus an applicable margin (ranging from 0.25% to 0.50%). The Revolver was terminated in connection with our entry into the New Revolver.

6. Commitments and Contingencies

Letter of Credit Facilities

Separate from the Revolver, we maintain uncommitted letter of credit 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 30, 2021, we had $17.1 million of outstanding letters of credit and bank guarantees under facilities outside of the Revolver.

During the nine months ended October 30, 2021, there were no material changes to our commitments as disclosed in our 2020 Annual Report on Form 10-K except as discussed in Note 5, "Debt."

Legal Proceedings

In the ordinary course of business, we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions, stockholder 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.

7. Earnings Per Share

Basic net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted-average number of common shares outstanding and potentially dilutive securities outstanding during the period. Potentially dilutive securities include stock options, unvested restricted stock and unvested restricted stock units outstanding during the period, using the treasury stock method. Potentially dilutive securities are excluded from the computations of diluted earnings per share if their effect would be anti-dilutive. A net loss from continuing operations causes all potentially dilutive securities to be anti-dilutive. We have certain undistributed stock awards that participate in dividends on a non-forfeitable basis, however, their impact on earnings per share under the two-class method is negligible.

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GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

The following table presents a reconciliation of shares used in calculating basic and diluted net loss per common share:


	Three Months Ended		Nine Months Ended
	October 30, 2021	October 31, 2020	October 30, 2021	October 31, 2020
Weighted-average common shares outstanding	75.9	65.2	71.5	64.9
Dilutive effect of stock options, restricted stock and restricted stock units	—	—	—	—
Weighted-average diluted common shares outstanding	75.9	65.2	71.5	64.9

Anti-dilutive shares:
Restricted stock units	0.7	—	0.7	—
Restricted stock	0.4	4.6	0.4	4.6
Stock options	—	0.1	—	0.1

As of October 30, 2021, October 31, 2020 and January 30, 2021 there were 1.1 million, 4.6 million and 4.6 million, respectively, of unvested restricted stock and restricted stock units. As of October 30, 2021, October 31, 2020 and January 30, 2021 there were 77.0 million, 69.8 million and 69.9 million, respectively, shares of Class A common stock, including unvested restricted shares, legally issued and outstanding.

As of October 30, 2021, 5.2 million shares of our Class A common stock were directly registered with our transfer agent, ComputerShare.

8. Segment Information

We operate our business in four geographic segments: United States, Canada, Australia and Europe.

We identified segments based on a combination of geographic areas and management responsibility. Segment results for the United States include retail operations in 50 states and Guam; our e-commerce operations; and Game Informer® magazine. The United States segment also includes general and administrative expenses related to our corporate offices in the United States. Segment results for Canada include retail and e-commerce operations in Canada and segment results for Australia include retail and e-commerce operations in Australia and New Zealand. Segment results for Europe include retail and e-commerce operations in six countries for both the three and nine months ended October 30, 2021. Segment results for Europe included retail and e-commerce operations in six and ten countries for the three and nine months ended October 30, 2020, respectively. We measure segment profit using operating earnings, which is defined as income from continuing operations before intercompany royalty fees, net interest expense and income taxes. Transactions between reportable segments consist primarily of royalties, management fees, intersegment loans and related interest. There were no material intersegment sales during the three and nine months ended October 30, 2021 and October 31, 2020.


	United States		Canada		Australia		Europe		Consolidated
three months ended October 30, 2021
Net sales	$	875.5	$	68.3	$	127.1	$	225.7	$	1,296.6
Operating (loss) earnings	(98.5)		(1.5)		0.7		(3.6)		(102.9)
three months ended October 31, 2020
Net sales	$	664.5	$	55.9	$	111.2	$	173.1	$	1,004.7
Operating (loss) earnings	(66.8)		7.1		10.1		(13.4)		(63.0)


nine months ended October 30, 2021	United States		Canada		Australia		Europe		Consolidated
Net sales	$	2,636.9	$	193.0	$	373.1	$	553.8	$	3,756.8
Operating (loss) earnings	(152.3)		(5.2)		3.9		(48.1)		(201.7)
nine months ended October 31, 2020
Net sales	$	2,009.3	$	137.5	$	373.9	$	447.0	$	2,967.7
Operating (loss) earnings	(189.6)		(3.0)		21.2		(85.2)		(256.6)

9. Income Taxes

The Coronavirus Aid, Relief, and Economic Securities Act (the "CARES Act"), which was enacted on March 27, 2020 in the United States, included measures to assist companies, including temporary changes to income and non-income-based tax laws. With respect to the CARES Act, we have benefited from the deferral of certain payroll taxes, the allowed carryback of a 2020 net

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GAMESTOP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except per share amounts)

(unaudited)

operating loss, the modification of limitation on business interest and the technical correction with respect to qualified improvement property. U.S. federal income tax receivable increased to $157.8 million as of October 30, 2021 compared to $47.8 million as of October 31, 2020 due to the net operating loss carryback allowed under the CARES Act. U.S. federal income tax receivable is recognized in prepaid expenses and other current assets on our Consolidated Balance Sheets.

Our interim tax provision is determined using an estimated annual effective tax rate and adjusted for discrete taxable events and/or adjustments that may occur during the third quarter and the nine months ended October 30, 2021.

We recognized an income tax expense of $1.7 million, or (1.6)%, for the three months ended October 30, 2021 compared to an income tax benefit of $53.9 million, or 74.1%, for the three months ended October 31, 2020. Our effective income tax rate of (1.6)% is primarily due to not recognizing tax benefits on current period losses and forecasted income taxes due in specific foreign and state jurisdictions in which we operate. Our effective tax rate of 74.1% for the three months ended October 31, 2020 was primarily due to tax benefits related to the CARES Act that were recorded during that period.

We recognized an income tax expense of $6.1 million, or (2.7)%, for the nine months ended October 30, 2021 compared to an income tax expense of $14.4 million, or (5.1)%, for the nine months ended October 31, 2020. Our effective income tax rate of (2.7)% is primarily due to unrecognized tax benefits on current period losses and forecasted income taxes due in specific foreign and state jurisdictions in which we operate. Our effective tax rate of (5.1)% for the nine months ended October 31, 2020 was primarily due to tax benefits related to the CARES Act as well as a significant increase in the valuation allowance that was recorded during that period.

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

Please read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

The following discussion contains forward-looking 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"). In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “pro forma,” “seeks,” “should,” “will” or similar expressions. Forward-looking statements include our current assumptions, expectations or forecasts of future events.

Forward-looking statements are based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause our 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. You should not place undue reliance on these forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. 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. 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.

All forward-looking statements included or incorporated by reference in this Quarterly Report on Form 10-Q are based upon information available to us as of the date of this Quarterly Report on 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 Quarterly Report on Form 10-Q, except as required by law.

OVERVIEW

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) offers games, entertainment products and technology through its e-commerce properties and stores.

We operate our business in four geographic segments: United States, Canada, Australia and 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 January 29, 2022 and the fiscal year ended January 30, 2021 each consist of 52 weeks. All three and nine month periods presented herein contain 13 weeks 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 realized during the fourth quarter, which includes the holiday selling season.

Impact from COVID-19

Throughout 2020, we temporarily closed stores or limited store operations at various times across our four operating segments. During the first quarter of 2021, temporary store closures were limited to certain jurisdictions in Europe and Canada. During the second quarter of 2021, most of our stores in all jurisdictions returned to normal operations. However, with the resurgence of COVID-19 cases due to variants, we experienced some temporary closures in our Australian segment that persisted through the third quarter of 2021. As certain of our stores experienced temporary closures during the nine months ended October 30, 2021, some of our stores offered and continue to offer curbside pick-up. We remain vigilant in our compliance with COVID-19 regulations across our operating regions.

While the gaming industry has not been as severely impacted by the COVID-19 pandemic as certain other consumer businesses, we have experienced adverse impacts on our results of operations during the nine months ended October 30, 2021. Factors impacted by the COVID-19 pandemic include, but are not limited to, the following, many of which are beyond our control:

•the geographies impacted by the virus;

•changes in the economy, consumer confidence and consumer spending habits, including spending for the merchandise that we sell;

•disruption to our supply chain including the manufacturing, supply, distribution, transportation and delivery of our products; and

•delays in the release of key video game titles.

The COVID-19 pandemic remains an evolving situation and its future impact on all areas of our business remain unknown. The COVID-19 pandemic and the related responses of governments, customers, suppliers and other third parties may materially adversely impact our business, financial condition, results of operations and cash flows. See Item 1A of Part II, "Risk Factors" for additional information.

Tabl e of Contents

BUSINESS PRIORITIES

GameStop has two long-term goals: delighting customers and delivering value for stockholders. We are evolving from a video game retailer to a technology company that connects customers with games, entertainment and a wide assortment of products. We are focused on offering vast product selection, competitive pricing and fast shipping – supported by high-touch customer service and a frictionless e-commerce and in-store experience. Accordingly, we prioritize long-term revenue growth and market leadership over short-term margins.

We are taking steps that include:

•Increasing the size of our addressable market by growing our product catalog across consumer electronics, PC gaming, collectibles, toys and other categories that represent natural extensions of our business;

•Expanding fulfillment operations to improve speed of delivery and service to our customers;

•Building a superior customer experience, including by establishing a U.S.-based customer care operation, and;

•Strengthening technology capabilities, including by investing in new systems, modernized e-commerce assets and an expanded, experienced talent base.

The Company will continue to invest in growth initiatives, while continuing to prioritize maintaining a strong balance sheet.

Connected to our transformation efforts, we have incurred and may continue to incur increased labor costs, severance expenses, marketing costs, customer care costs, and consulting fees with third parties. See "Consolidated Results from Operations—Selling, General and Administrative Expenses" for further information.

Tabl e of Contents

CONSOLIDATED RESULTS OF OPERATIONS

The following table presents certain statement of operations items and as a percentage of net sales:


	Three Months Ended								Nine Months Ended
	October 30, 2021				October 31, 2020				October 30, 2021				October 31, 2020
	Amount		Percent of Net Sales		Amount		Percent of Net Sales		Amount		Percent of Net Sales		Amount		Percent of Net Sales
Net sales	$	1,296.6	100.0	%	$	1,004.7	100.0	%	$	3,756.8	100.0	%	$	2,967.7	100.0	%
Cost of sales	978.0		75.4		728.4		72.5		2,787.2		74.2		2,156.8		72.7
Gross profit	318.6		24.6		276.3		27.5		969.6		25.8		810.9		27.3
Selling, general and administrative expenses	421.5		32.5		360.4		35.9		1,170.7		31.2		1,095.1		36.9

Asset impairments	—		—		—		—		0.6		—		4.8		0.2
Gain on disposal of assets	—		—		(21.1)		(2.1)		—		—		(32.4)		(1.1)
Operating loss	(102.9)		(7.9)		(63.0)		(6.3)		(201.7)		(5.4)		(256.6)		(8.7)
Interest expense, net	0.8		0.1		9.7		0.9		26.0		0.7		23.9		0.8
Loss from continuing operations before income taxes	(103.7)		(8.0)		(72.7)		(7.2)		(227.7)		(6.1)		(280.5)		(9.5)
Income tax expense (benefit)	1.7		0.1		(53.9)		(5.4)		6.1		0.2		14.4		0.5
Net loss from continuing operations	(105.4)		(8.1)		(18.8)		(1.8)		(233.8)		(6.3)		(294.9)		(10.0)
Loss from discontinued operations, net of tax	—		—		—		—		—		—		(0.9)		—
Net loss	$	(105.4)	(8.1)	%	$	(18.8)	(1.8)	%	$	(233.8)	(6.3)	%	$	(295.8)	(10.0)	%

The Three and Nine Months Ended October 30, 2021 Compared to the Three and Nine Months Ended October 31, 2020

Net Sales

The following table presents net sales by significant product category:


	Three Months Ended								Nine Months Ended
	October 30, 2021				October 31, 2020				October 30, 2021				October 31, 2020
	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	$	669.9	51.7	%	$	413.4	41.2	%	$	1,983.0	52.8	%	$	1,368.1	46.1	%
Software	434.5		33.5		444.4		44.2		1,229.0		32.7		1,247.9		42.0
Collectibles	192.2		14.8		146.9		14.6		544.8		14.5		351.7		11.9
Total	$	1,296.6