Thank you. And welcome to GameStop's First Quarter Fiscal 2019 Earnings Conference Call. This conference call will include forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Any such statements should be considered in conjunction with the cautionary statements and safe harbor statement in the earnings release and risk factors discussed in reports filed with the SEC. GameStop assumes no obligation to update any of these forward-looking statements or information. A reconciliation and other information regarding non-GAAP financial measures discussed on the call can be found in the Company's earnings release issued earlier today, as well as in the Investor section of the Company's website. Now, I would now like to turn the call over to the Company's Chief Executive Officer, George Sherman.

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,…

Thanks, George. Good afternoon, everyone. Before I discuss the first quarter results, I'd like to take a moment to welcome George to the GameStop team. After an extensive search, the entire team is glad to have George on board and leading our transformation as we tackle the challenges ahead. The team is aligned around doing everything needed to protect and preserve our leadership position in the video game industry, while simultaneously setting the strategic vision for the GameStop of the future. This is a very exciting and pivotal time for the company. The team recognizes the amount of work that is required as we embark on our transformation. As George previewed, we have a number of initiatives in place that we're beginning to test to determine their viability for the future, initiatives that we believe can help drive growth and improve our performance over the long-term. One of the initiatives we introduced to you in April, and George just elaborated on, are profit improvement initiative now known as GameStop Reboot is well underway. This is an organization-wide initiative designed to improve our operations for the future and deliver increased efficiency. Since embarking on the plan, our associates and outside partners have made steady progress in identifying opportunities to increase operational efficiencies and reduce costs where possible. Moving on to our results for the first quarter. Total company sales decreased 13.3% with comp sales down 10.3%. In the U.S., comp store sales decreased 10.2%, while international comps decreased 10.4%. Coming into the year, we anticipated a challenging top line comparison given that we're nearing the end of the current console cycle, comping a stronger title slate released in 2018 and ongoing under performance in our pre-owned video game category. All three of these expectations came to fruition in the first quarter…

Thank you, Rob. Given this is your last earnings call at GameStop, I wanted to take time today to thank you for all that you've done for the company of your 23 year career. You oversaw the successful integration and very often led the post-merger integration of several key acquisitions and the roll-up of the U.S. video game market. You've been a steady hand to the investment community, as well as all the thousands of GameStop associates over the years, particularly over the last two years with the significant changes the organization has experienced. I thank you for helping getting me up to speed in the business, and I wish you well in your next chapter. You'll be missed but know that we appreciate your hard work and dedication over the years. Thank you.

Thank you, George.

With that, operator, I like to open up the call for questions.

Thank you [Operator Instructions]. And we’ll our first question today from Stephanie Wissink with Jefferies.

This is Ashley on for Steph Wissink. Thanks for taking our question. So the collectibles business looks it accelerated sequentially with higher gross margins. Can you talk a little bit about the key drivers and key brands there?

Could you repeat the question please?

So, regarding the collectibles business, it looks like you've accelerated and had higher gross margins. Can you talk about the key drivers and key brands?

Yes, sure. We can talk about that. I think if you look at our collectibles business, we have couple of strong categories. POPS is certainly one of them. So, collectible figurines are in high demand and gets regular traffic into the stores looking for new releases. In addition, our T-shirt business remains quite strong as do the statues within collectibles.

Next we'll hear from Ray Stochel with Consumer Edge Research.

First, thank you so much to Rob for all the help over the years. And thanks to everyone for taking my question today. One starting off would be can you discuss any recent changes to your loyalty program? We've seen some tests in the market around that. And then how do you think longer term about marketing the pre-owned value proposition? And when do we think that we can see some changes to the pre-owned value proposition over the upcoming months and years? Thanks.

I think you're probably referring to a couple pilots that we have in place with PowerUp Rewards. We are looking to provide more of a continuous flow of coupons as part of the PowerUp Rewards program. So, in addition to -- whereas the past benefit was generally centered around pre-owned games, this one gives you actual money to spend in stores on a monthly basis, and it makes a really simple return on investment where you get $60 worth of coupons. So that's in test. It is not something that we’ve rolled, it’s something that we're piloting right now liking the initial results on that one. On part two, on pre-owned gaming, I think as we look at the pre-owned gaming business and we consider the results of it and we're disappointed with the results a bit. Immediately, the topic of pricing comes to mind, and I'd say just really being clear and compelling on what the value proposition is of pre-owned games relative to new games and ensuring that there is some level of guaranteed value to the customer.

We'll now hear from Colin Sebastian with Robert W. Baird.

It’s actually Ben on for Colin. Two questions, if I could. First on the dividend, could you walk through, I guess the rationale to eliminate it here for the time being, given that there doesn't appear to be any debt coming due until early 2021. Was that reflective of any changes in the free cash flow outlook in the near term or just more clarity around there I guess? And then on the pre-owned business, given the ongoing declines there, are there any tweaks to the loyalty program that you're making that maybe reaccelerate growth or just anymore clarity on expectations for re-acceleration there anytime soon?

Yes, let me start off with the dividend and Rob can join in as well. So, I think that decision was made to, first of all, shore up the balance sheet. So we are addressing what debt we have. I think related to that, and as we mentioned, it is just giving us flexibility for our transformation as we identify new growth channels that we have the ability and the flexibility to invest in them.

I think that's fair. And I'd add that we no longer see the dividend as an effective way to return capital to shareholders. So I think what we look at in the future what Jim will weigh in on with George and the Board as they assess the capital allocation program that will give them an opportunity to redesign that in a way they think is more appropriate. With respect to the pre-owned side of things and you asked about the loyalty program, this is what George was talking about with respect to testing some new pro-benefits that will provide, we think, greater value to the consumer, and a more immediate recognition of the ROI .

We think PowerUp Rewards is a really special capability in-house, 60 million members nearly and just the notion of innovation in testing is one that we’re going to embrace. So while the team is currently working on a pilot for new value proposition, we’ll always do those sorts of things to make sure we are getting the gain the best return on our PowerUp that we can, and it also says, just embracing the data that comes along with PowerUp Rewards.

Joseph Feldman with Telsey Advisory Group has our next question.

I wanted to ask, when you talked about reorganizing ThinkGeek and trying to reorganize or re-platform the website, can you talk a little more what you’re doing on the ThinkGeek side, just a little more clarity there?

Sure. I think you can think of it as inefficiency play as well as leveraging the assets that we’ve built with the collectibles team. We currently have redundant teams and redundant web properties. So, there is the separate thinkgeek.com platform, as well as all the GameStop omni-channel capabilities. What we’ll do with ThinkGeek is produce a redirect, so we’ll be leveraging off the GameStop platform to still have a presence for ThinkGeek and still have that brand at least initially, while we consolidate the backend operations. There's redundancy between collectibles and ThinkGeek that we can run more efficiently.

And then just a follow-up, regarding the debt level, because you guys did comment that with that incremental $160 or so million in cash that you have for the dividend, not paying the dividend that is. Is there a target debt level that you guys would like to be at, again recognizing that you have a little time before it's due, but is there a target in mind that you're trying to get to?

Yes, I wouldn't say there's a hard target in mind. I think recognizing that we have the 2021, they're at a favorable interest rate. We have the cash flow to be able to bring that down to perhaps not as a hard target but to get the debt to EBITDA level a little closer to one to one, and then give Jim and George and team an opportunity to evaluate that line of the entire capital structure and capital allocation policy.

Next, we'll hear from Seth Sigman with Credit Suisse.

I just want to follow up on a couple points, first on the pre-owned business. Just to clarify here. I guess, George, what is your view of the challenges facing that business today? You mentioned value proposition. I wasn't sure if that meant more marketing and communication? Or do you actually think there's an issue with the value proposition? And ultimately, do you think that margins in that business in that category need to be reset?

Yes, thanks Seth for the question. I think you pretty well hit it. I think if you look at the pre-owned business, there's going to be some carry-over, some of the same challenges that the core new gaming business has with digital. But in addition to that, historically, the place has been based more off the supply and demand as opposed to on a clear value proposition on the price of a new game versus a use game. And we think I'm pretty on there, it has to be at least some consistent delta, so that there's clear rationale for buying the pre-owned games. So that's what we will talk about when we think in terms of pricing strategy around pre-owned is what is that guaranteed benefit look like for the customer and how do we hold the line on that, so there's always certain value.

So I guess the hope is that the changes would help drive better gross profit dollars. But can you help us size up what that could potentially mean for margin rate? Just given that it's typically been one of the highest margin parts of the business.

Yes, I don't think we can give you a specific figure on gross margin rate right now. When I say more broadly, as you talk about the transformation and you look at the aspects of it. Look, there's a cost component. You can certainly predict that there's some immediacy to that or some in year benefit to that. On the middleware, which is business optimization, current business, pricing is one of those things, it is going to work both ways. When the laws of elasticity say that you can raise the price, we're going to see immediate gross margin dollars. When we're lowering prices, we understand this will be something of a trough for the word to get on that one and for it to take effect. But we certainly believe that we're going to see more gross margin dollars in the long run by having fair and equitable pricing, and just having a clear value prop to the customer.

And just as a follow up here, as we think about the prospects of improving profitability over time. I guess, that $100 million. Is there any change to that timeline? I think we've talked about over the next couple of years. If you could help us narrow in on that a little bit. And then I guess over the medium term. How do we think about the composition of results? So should we be thinking about I guess the first phase of this transformation showing up more in lower SG&A, given the inefficiencies with the medium term or longer term, I guess, more progress on the sales and gross profit side. Help us think about that a little bit.

Again, I think if you think of this in three phases, that's probably the right wins. So you have a cost and efficiency piece of it. You can probably pretty well establish that there's going to be some in-year 2019 benefit from that aspect of the work. It was obviously a far greater benefit when you analyze the savings in 2020, and we're going to continue and delivering the savings in 2020. Again, on the optimization work, I think that will show up in many categories, indirect procurement will be one of them but also in the form of improved gross margins. So we talked about pricing strategy, a more logical markdown cadence, inventory controls. All these things are more likely to show up on the gross profit rate side of the business. And then the longest pole in the tent and the most difficult piece of this is obviously new growth verticals. I take a little bit of excitement in the fact that the incubator is now filling up. So we have things in flight, we have test in flight, but we're not prepared to call those rollout successes, yet we actually go test them and thoroughly vet them. And that's going to be the latest arrival is just those new revenue streams. So in order, I think you're right. SG&A is going to be the first thing you're going to see, gross profit raise is going to be the second thing you’re going to see and sales will come third.

We’ll now hear from Anthony Chukumba with Loop Capital Markets.

Thanks for taking my question, and Rob, my thanks as well for all your help over the years. So you mentioned the fact that the video game, current video game cycle, is longitude. And I don't think anyone's going to disagree with that. I was just wondering, what are you hearing, particularly with E3 coming up, I guess just next week. What's the current scuttlebutt that you're hearing in terms of when we'll get consoles, new consoles from Sony and Microsoft? And also, my understanding with that there will be at least one new switch model coming up this year. And is that your expectation as well? Thanks.

Anthony, I'm sorry to disappoint you, but I think we're going to leave the expectations around timing to the console makers themselves.

[Operator Instructions] We’ll now hear from Curtis Nagle with Bank of America Merrill Lynch.

Just turning back to capital allocation perspective, you've mentioned debt reduction, dividend cut, some growth initiatives, but no mention of buybacks. Is that off the table?

As I mentioned in my commentary, we're not announcing any buybacks at this time. We are going to give the new management team an opportunity to get in, learn the business and understand where they see the opportunities in the future for capital allocation.

And then just a follow-up. Would you consider acquisitions as part of the turnaround? Or do you think this will be wholly self-driven?

Yes, we won’t really get more towards self driven. There are no acquisitions that we're talking about looking at this time.

And there are no further questions. I would now like to turn the call back over to George Sherman for closing remarks.

Okay, thank you. Thanks everyone for your participation in today's call. We appreciate your interest in GameStop. We're excited to be here. We have a team that's committed to turning this business around. And we certainly believe that we'll have much more to say overtime. Thank you.

That will conclude today’s conference call. Thank you for your participation.