GameStop Corp.
Q3 2014 Earnings Call Transcript

Published: 21 Nov 2014

[Operator:]

Good day, everyone, and welcome to the GameStop Corporation's Third Quarter 2014 Earnings Conference. At the conclusion of the announcement, a question-and-answer session will be conducted electronically. [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 Paul Raines, Chief Executive Officer of GameStop. Please go ahead sir.

[J. Paul Raines:]

Thank you operator, and welcome to the third quarter earnings call for GameStop. As always, we start by thanking our associates around the world for their outstanding customer service on behalf of our value customers. I'm very pleased to be back at work full-time after my recent illness. During my three-month medical leave, I received excellent care at the Tisch Brain Center at Duke University Hospital in North Carolina as well as the Baylor Sammons Cancer Center here in Dallas. The doctors, nurses and staff in both facilities are outstanding and I'm grateful to them for their efforts. My treatments have gone very well and I'm blessed to say that I had excellent results on my follow-up visit to Duke and Baylor last week. I have a great health prognosis and look forward to many future conversations with you. It is also great to return to the business and see the outstanding work done by our team and associates. We have developed a deep bench over the past years and it is great to see their success in my absence. Our Board has supported extensive talent development and succession planning. And it pays off in a situation like the one we just experienced. Joining me today on our call are Rob Lloyd, Chief Financial Officer; Tony Bartel, President; Mike Mauler, Executive Vice President of International; Mike Hogan, Executive Vice President of Strategic Business; and Matt Hodges, our Vice President of Investor Relations. We will be closed on Thanksgiving Day next week in the United States, out of respect for our associates and their families. To all our associates on this call, you know that the phrase protect the family means a lot to us. Sometimes, we have to move aggressively into new businesses to protect the family and sometimes we have to not let the pressure from other retailers distract us from our values. A few things to keep in mind as we turn the corner past like Friday into holiday. First of all, the shift of Assassin's Creed by a week impacted our quarter by $0.05 per share. And the overlap of Grand Theft Auto presented a large comp impact. GameStop's two-year comp for the third quarter is 18% [ph], among the highest in retail. Second, digital growth was 52%. So, the growth of digital downloads is providing a nice tailwind to GameStop as well as many publishers. Third, our technology brands unit is going aggressively and we expect solid growth in 2015 from the AT&T relationship and the new cycle of Apple products. We may also acquire new technology brands in the future. Fourth, launched the PowerUp credit card in the quarter and the approved credit on the portfolio is over $140 million and likely to be used heavily at holiday in unique ways as we market the PowerUp base in both video games and technology brands. Lastly, are buyback was aggressive in the quarter as we continue to believe our shares are undervalued. Our recent debt offering was oversubscribed indicating that we can be flexible with our capital strategy. In the spirit of keeping our remarks brief and allowing you to ask more questions, I will now hand the call over to Rob and Tony, but feel free to also ask Mike Mauler, Mike Hogan and Matt Hodges questions at the end of our prepared remarks. Rob?

[Robert Lloyd:]

Thank you, Paul. It's great to have you back. Good afternoon, everyone. I'd like to start with a brief overview of the third quarter and guidance for the fourth quarter. Overall, the majority of our product categories performed well during the third quarter. However, our results were impacted by two primary factors. The first was Assassin's Creed moved out of our third quarter and into our fourth quarter after we gave guidance. The second was that the AAA titles launched during the quarter like Destiny and Super Smash Brothers faced a very tough comparison to the powerful AAA titles in Q3 of last year including GTA V, Pokémon X/Y, Battlefield 4 and Assassin's Creed IV

[Tony Bartel:]

Thanks Rob and good evening everyone. We continue to successful execute against our goal of winning the new console launch. Our software market share on Xbox One and PS4 hit an all-time high at 56% for the quarter. In addition, our hardware share on Xbox One and PS4 is at all-time highs. As the installed base on this generation of consoles continues to grow, we are poised to continue our market share increases. This launch continues to outperform the previous cycle with hardware units up 73% and software units up 24% over the prior launch. For GameStop we are up 157% and 102% for hardware and software respectively. The third quarter of 2013 had some big titles to overlap. For November has had several strong releases leading us into the holiday. New titles are driving the install base and we are pleased with the recent launches of Activision’s Call of Duty

[Operator:]

Thank you. [Operator Instructions] And we'll go first to Mike Olson with Piper Jaffray.

[Mike Olson:]

Hey, good afternoon.

[Tony Bartel:]

Good afternoon Mike.

[Mike Olson:]

A couple quick ones here. If you lost $0.05 from Assassins' in the quarter, does that mean that you're gaining $0.05 from Assassins' in Q4? And if so, is the rest of the week guidance for Q4 kind of all related to cautions around legacy gen software or is there any reason you kind of just talk about this, but is there any reason to believe full game downloads are kind of impacting the new software category?

[Tony Bartel:]

Okay. You said that you had a couple questions; do you have another question as well?

[Mike Olson:]

Sure. The second question is should we expect pre-owned gross margins to come down from this elevated level or do you think that's sustainable?

[Tony Bartel:]

Okay. Rob, I will address the first and then kick it over to you and then Mike, if you want to talk about pre-owned margins staying at this level when we're done. What happened -- yes, the answer is that it will go into the fourth quarter. So, the reason for the fourth quarter guidance moving down is in fact that the impact of the decline in 360 and PS3 is offsetting a very strong business and outperforming business on the Xbox One and PS4. So, that's what's taking place in the fourth quarter and that's what's reflected in our forecast. Rob, do you want to add to that?

[Robert Lloyd:]

There's not much to add. Tony I think you covered it.

[J. Paul Raines:]

Mike, you do have the fourth factor that is not clear to us yet, but Rob mentioned it in his remarks as well.

[Tony Bartel:]

And Mike, you want to talk about pre-owned?

[Mike Hogan:]

Sure. As far as the pre-owned business I think we're very happy with the performance the business. One thing I think we should point out is we're very competitive in our pricing and monitor every day. You can see it in a quarter in which the new software declined pretty substantially; we actually had positive growth in our pre-owned business in addition to being been able to expand the margin. As far as the outlook for margin going forward, I'll turn that over to Rob.

[Robert Lloyd:]

Yeah, we had guided to a pretty broad range 42% to 48% earlier in the year when we introduced the Value concept. I think we're pleased with the inroads we've made so far on the value side of the business and its allowing us to address many of the ins -- the out of stock positions that we had in our stores and some of our better selling pre-owned titles. And we're pleased with the margin rates we've been able to achieve thus far. I'd say at this point we're pretty comfortable with where the margin rates have been and while I won't alter that broad range going forward, I think if you look at what we've done since we introduced the value again we've been able to hold our margin.

[J. Paul Raines:]

What did you guys by? We bought 26 million you said?

[Robert Lloyd:]

36 million.

[J. Paul Raines:]

36 million in value. So, the only thing I would say there too Mike is we probably have not bought as much as we thought we would when we started this. The good news is you're getting a much better margin rate. The less good news is that we're not growing as fast as we'd like to although 2.5%, 2.7% is a pretty nice number on a big base.

[Tony Bartel:]

Mike, let me also just go back and clarify the 360 and PS3 decline. Year-to-date in the U.S., Xbox 360 and PS3 software and hardware are down 57.8% on a dollar basis. That's clearly significantly more than we anticipated at the beginning of the year and so that's what we factored into our fourth quarter forecast.

[Mike Olson:]

Thank you.

[Operator:]

And we'll go next to Colin Sebastian with Robert Baird.

[Colin Sebastian:]

Great, thanks. Good afternoon. By the way welcome back, Paul.

[J. Paul Raines:]

Thank you very much, Colin. And I forgot to mention this earlier, but many of you have sent me very nice notes. Thank you very much for your thoughts and prayers.

[Colin Sebastian:]

Well, first off, just given the pressure coming from the legacy platforms, I wonder if there's any data to suggest that those consumers moving away from those older consoles are eventually planning to step up to the next-gen as opposed to migrating away from those platforms altogether? And separately and perhaps related, it's pretty clear at least to me that price cuts are needed on these older platforms, I'm wondering if you'd already expected that by now and since we haven't seen that, is that something we should expect either still this year or are we going to have to wait until next year?

[Tony Bartel:]

Sure, Colin I'll answer that. This is Tony. The 73% increase that we've seen in the units especially in hardware units, we're actually very excited about Xbox One and PS4 and like I said that's outperforming our expectations. So, we do see quicker adoption in that category than what we had anticipated. As the price cuts, we think it would be excellent and definitely would increase the sell-through rate on the old generation consoles. We definitely think that would help, but we have not factored anything into our forecast at this point.

[Colin Sebastian:]

Okay. And then maybe as a follow-up to the question around the EPS. The $0.05 we know from the shift of a title into Q4, I wonder how much of the remainder of the sales impact and then what EPS impact there was from the shortfall on the legacy platforms and given that EPS plus the $0.05 would have been in line with your guidance and consensus, the shortfall on the older platforms, was that more hardware or more software?

[J. Paul Raines:]

Rob, you want to take that question?

[Robert Lloyd:]

Sure. I can't say that we dissected the data to specifically see what the shortfall impact on the prior-gen software might have been, but I'd say that the biggest area where we're feeling it is in prior-gen software sales but prior-gen hardware sales have also been on a steeper trajectory down this year than we expected.

[Colin Sebastian:]

Okay. Thanks, guys.

[J. Paul Raines:]

Thanks Colin.

[Operator:]

Our next question comes from Tony Wible, Janney Capital Markets.

[Tony Bartel:]

Hi Tony.

[J. Paul Raines:]

Hey Tony.

[Tony Wible:]

Sorry about that, Paul. I was saying that welcome back, it's great to have you on the call.

[J. Paul Raines:]

Thank you, Tony.

[Tony Wible:]

That's said, what could you guys tell us about the launch of the iPhone you guys have now had the Tech stores for a very short period of time. Would you have anticipated seeing a little bit more business or how does a new iPhone filter through all the different parts at GameStop, kind of the core store to Simply Mac, the Spring? And then also -- when do you think that seventh gen headwind starts to shift? What are the specific catalysts you think that are out there to cause that?

[Tony Bartel:]

Let me first talk about the iPhone launch. Clearly we sold every single iPhone that we could get our hands on in both Simply Mac and in our Spring Mobile divisions. We also benefited from iPhone 6 in all of those locations by taking back trades. We also -- so we took the trades of all of the old phones into all of our GameStop stores and to Simply Mac stores and obviously into Spring Mobile store. So we benefited dramatically. We also work with AT&T with our direct fulfill program which gave us even additional capacity. So, we had strong demand in it benefited not only the direct sales, but also the trade in of inventory that we had.

[J. Paul Raines:]

Tony, the other point I would make is that if you go back to our initial discussions on Technology Brands, I guess Rob it's a year and change since we started talking to these guys? It was clear to us that Apple had a significant product pipeline. Now, some people believe them, some people didn't, but I think if you look at what's unfolded and Rob mentioned we're very pleased with what's going on in Technology Brands in general, it's clear that that was a pretty good bet. Now the question is going to be up can we get enough product? Can we keep the pipeline flowing? But I think that's been very successful. As far as trades, Tony, do you have anything to say a trades at GameStop stores?

[Tony Bartel:]

Sure trades went gone up significantly as we -- I went through the iPhone 6 launch and they met our expectations and we continue to take trades in all of our GameStop stores. As far as the seventh gen headwind, Rob talked about a couple of titles that have moved out into the first quarter of next year, some are actually behind that. So, we feel very confident given where we're at in cycle and given our strong performance with this growth and given the outperformance of Xbox One and PS4 that we're very close. Next year, we're expecting very strong first quarter. Rob, you have any other thoughts on when the headwinds meet?

[Robert Lloyd:]

Yeah, we had been saying that we think that the intersection of prior-gen, the decline curve and then the acceleration of the next-gen in sort of a way that would hold for the future, we think is in the first quarter of next year.

[Tony Wible:]

Got it. And just to clear up on the mobile. The mobile revenues per store, I think if I did my math correctly, were down about 9% sequentially. I assume that's just a timing issue with when you added those new stores since it is such a sizable pace there?

[Robert Lloyd:]

I'm sorry, can you--?

[J. Paul Raines:]

Mobile revenues per store down 9%.

[Robert Lloyd:]

Mobile revenues per store down 9%.

[Tony Wible:]

That's a function of adding the stores or was there anything else behind that drop just like the iPhone launch?

[J. Paul Raines:]

Feels like a timing.

[Robert Lloyd:]

Yeah. I think that has to do with the timing of the store count and when during the quarter we -- I mentioned that we added, I think it was 55 stores through acquisition and a lot of that had to do with timing of when those stores got added.

[Tony Wible:]

Great. Just wanted to confirm that. Thank you.

[Tony Bartel:]

Thank Tony.

[Operator:]

And we'll go next to Seth Sigman with Credit Suisse.

[Seth Sigman:]

Okay. Thanks, and welcome back, Paul.

[J. Paul Raines:]

Hey Seth.

[Seth Sigman:]

I just wanted to follow-up on the guidance for the fourth quarter and just hoping maybe you can give a little more color on the specific category assumptions and whether any of the other assumptions changed such as hardware because it seems like the sales reduction seems a little bit worse than the EPS, so I'm just trying to reconcile that.

[Tony Bartel:]

I'm sorry; can you run back to that for me?

[Seth Sigman:]

Well, maybe you could give a little bit more color on the specific categories options for the fourth quarter, hardware, software, used, how could think about them? And if there were any other factors that changed incrementally relative to your initial guidance besides software?

[Tony Bartel:]

Well, we don't give a lot of guidance around particular categories, but I will say that we see software growth in the fourth quarter. The hard part of the comp is obviously that we're launching the next-gen hit right around on this time in November of last year. I will tell you that we gave guidance earlier in the year on the categories -- on the margin rates for the individual categories and we see those margin rates -- for the expectation of mobile we see those margin rates continuing within those guidelines that we gave. Mobile, obviously, is been running higher than the guidance that we gave and that's because of the impact of the next program within the Spring Mobile stores.

[Seth Sigman:]

Tony, anything on allocation or Mike anything on allocation you guys are concerned about?

[Tony Bartel:]

Well, the only thing that we are concerned about is what you've already mentioned or Rob already mentioned and that’s attached to -- about the West Coast work stop, and slowdown that’s currently happening. We monitor that daily to make sure that our product flow will be here. So that could impact hardware and aside from that Mike…

[J. Paul Raines:]

I mean, we expect demand for hardware to be very, very strong and historically that second Christmas after you have a new launch there can be spotty allocation issues. Also enough will be manufactured. But we believe the demand is going to be there.

[Seth Sigman:]

Got you. Okay, that’s helpful. And then, I guess, a second question as you think about your used inventory today, can you give us a sense of how much of that used inventory is last generation versus the current generation. Just trying to understand that if demand is weaker for the last generation and you still have a lot of product there, does that have implications for the used business at least in the near term until next-generation can really pick up the slack?

[J. Paul Raines:]

It's an interesting question, right, because -- and Mike you have to answer the inventory questions. I think if you -- availability of current gen -- or old gen going forward is directly tied to performance of your used inventory. So that's going to be an interesting debate.

[Mike Hogan:]

Now, overall, used inventory is up going into the fourth quarter, but down on a breakdown by a category.

[Robert Lloyd:]

Yeah, what I can tell you is that, historically, almost regardless of the amount of pre-owned inventory that we have going into November, the same percentage of that inventory is going to sell through by the end of the holiday season. And so what we've found through the year in this business, whether it's going through new cycles or in the depths of a cycle, is that, we want to have as much pre-owned inventory as we can going into November. We feel pretty good about the amount of inventory we have and we’re not particularly concerned about what generation it's tied to.

[Seth Sigman:]

Okay. Thanks for the color. I appreciate it.

[Operator:]

Our next question comes from David MaGee with SunTrust Robinson Humphrey.

[David MaGee:]

Yeah, hi everybody. Paul great to have you back.

[J. Paul Raines:]

Thank you, David.

[David MaGee:]

So, just if I -- want to sort of rank the impacts to the fourth quarter in terms of concerns that’s -- the prior gen software being number, number two being delays of next gen to next year, and then three being the -- cost risk, I guess. That’s the order of priority of those three factors?

[J. Paul Raines:]

That would be correct. The port risk is the slowdown that’s going on in terms of the bringing in of goods of hardware…

[Robert Lloyd:]

Because costs isn’t we are very concerned.

[David MaGee:]

So you are not paying higher cost now? Some retailers, I think, have already incurred some higher cost around that issue?

[Robert Lloyd:]

No, they were not. It's more of an availability issue David.

[David MaGee:]

Okay. Are you seeing anything different with regard to full game downloads either what you are hearing in the sector or what with your own experience, outside of that -- of those games being attached to the consoles?

[Tony Bartel:]

Well, David, what we can say is that our digital continues to grow very quick like talked about, it was 52% digital growth, and we are clearly driving this market forward and 9.5% of our total sales were represented by our digital receipts that represent 9.5% of our sales. And with 56% market share on the new -- on the physical, our folks are testing a lot of DLC. I mean, if you've been through our launch is what you see is our associates walking up and down the lines at every launch and around midnight they are walking up and down the lines, helping people discover the great DLC content. Again, over 60% of that content is -- or large portion of that content if funded by non-credit card types of currency. Really what we do in this digital space, we do a great job of helping people discover and afford these digital contents.

[J. Paul Raines:]

The interesting thing, David, is -- and Tony had a couple of paragraphs on this, what we are seeing is a tremendous amount of free giveaways on full game downloads and that’s driving pretty confusing set of numbers coming from our publisher partners. In that some will say delivered digitally, some will say downloaded, some will say... So our numbers are very clean. It's what we take payment for from the customer. There is going to be a turning point in the road here on this gaming business where the sustainability of giving away full games is going to be tough. We are in the publishing business at Kongregate and one of the great advantages there is that we have -- we don’t have a console maker, we do have a platform owner, but we don’t have a console maker between us and the customer. The Apple relationship and the Google relationship is a lot simpler for the consumer to navigate free to play. So the console relationship somewhere in here it's going to be tough for everyone to make money. So I think that’s what we look and that’s what we think -- that’s why we think our buy/sell/trade business ironically is tied to the success of full game digital downloads, rather than fair case of us disappearing over is really not the case.

[Tony Bartel:]

And it actually enables investment in the category which is vitally needed.

[J. Paul Raines:]

Yeah.

[David MaGee:]

All right and thank you. And then lastly the -- has your thinking changed with regard to the market model for 2015 in terms of the Central growth next year, just given imaginations we've see in the recent months.

[Tony Bartel:]

Mike you want to give an update where we are at on 2015?

[Mike Mauler:]

Sure. I would say, no. I would say we are still projecting a strong growth for the console games category for 2015. One of the things is that we continue to monitor on a quarterly basis is the percentage of PowerUp members who are intending to purchase next generation consoles. And the last -- as the last iteration of that study, that number is still North of 50%. So I would say that combined with some strong software, including some titles that have gotten pushed from 2014 into 2015 keeps us pretty bullish on the growth prospects for the console category for 2015.

[David MaGee:]

Do you think the overall sector grows faster than this year?

[Tony Bartel:]

…looked at it that way.

[J. Paul Raines:]

Software versus hardware, two different worlds.

[Tony Bartel:]

Yeah, I think would be -- that’s a fair point. On the software side, probably, yes. On the hardware side that’s probably a question mark.

[Robert Lloyd:]

And the other challenges that what we've seen so far with NTD is I think the growth rate year-to-date for the category physical has been around 7% and our market model typically incorporates the digital. And not as much is known on what's happening in digital as we move through the year on a month-to-month basis. At the end of the year when Mike is going through the process of updating the market models for us to talk about it, which we typically do in the March timeframe, more is maybe known on a look back as to what the actual impact was, so tough to draw a conclusion in November.

[J. Paul Raines:]

Fair to say, though, Rob, that our digital revenues at 800 million plus-ish is that expectation with the 15% growth. I think Tony mentioned that. So that part of our business is executing as per the market model.

[Robert Lloyd:]

Yeah, if you would take the console category to what is console hardware, console software, console digital, we are still expecting the full year there to be in the 19.

[J. Paul Raines:]

Yeah.

[David MaGee:]

Great. Thanks and good luck.

[J. Paul Raines:]

Thank you.

[Operator:]

And we have time for two more questions. We will go next to Brian Nagel with Oppenheimer & Company.

[Brian Nagel:]

Hi, good evening. First of all welcome back Paul. It's great to hear on the call.

[J. Paul Raines:]

Thank you very much.

[Brian Nagel:]

The question I have, and look, as you know there is pretty much has been and remains a negative thesis where you continues to clog your stock and that thesis centers on digital downloads and such. As we look at the data in the third quarter release, and I appreciate all the color commentary here, it's clear what you are saying that there were some -- again some transitory factors, comparisons, delay of games as such. But what can you tell us that basically gets us comfortable that digital -- full game downloads are not in some significant way disrupting the cycle or weighing upon -- we have the market share data weighing upon sales -- sales of new generation software at GameStop.

[Tony Bartel:]

Well, I think that like we said -- first of all, our digital growth is significantly outpacing the category. So that’s definitely one piece. And then we talked about the economics of digital, and when you factor in all of these games that are given away free, based on the research that we've driven, it drives the price point down to $22, which is clearly an unsustainable price point for a game that’s physically is at $60. So I think the economic question that is starting to emerge is a key question that we have. And -- so we are outpacing the rest of the publishing community on our digital growth. We are driving that. We think it's because of what we add to the digital experience in terms of discovery and affordability. And also our strong market share that we are using to attach digital content, again, a lot of digital content that is being sold for real money, as Paul talks about, is downloadable content that is attached to a physical product. That is a growing category, that is a big category and that is a profitable category for the entire ecosystem.

[J. Paul Raines:]

It is also true, though, Brian, the broadband speeds that -- we've been talking about broadband speeds for years. The broadband speeds are still a challenge for a full game download. And while I don’t think there is a huge business there yet, there could be some day we will be in it. But I just don’t know if we can download enough -- games fast enough for people to… I think -- I know that's the -- but I think the real story is quite different as Tony described.

[Tony Bartel:]

And it is frustrating, as Paul said not to have information -- good information and everyone seems to be reporting that in a different manner. But like you said, we are reporting that based on dollars that go through the tilt.

[J. Paul Raines:]

So it’s a really important part of our business.

[Brian Nagel:]

Go ahead. Appreciate your comments.

[J. Paul Raines:]

Just beyond that the problem you've got is you're going to have digital bears who are going to be digital bears, right? And they are going to be tough to convince, other than we have to keep posting great growth in digital numbers.

[Tony Bartel:]

And there is really not a proxy, Brian, for an industry that has gone through a digital transition when you have a player like a GameStop establishing such a strong residual value on the physical side, that’s a barrier you have to get over once you move digital. And that’s why those price points all of the studies that we are seeing and that we are doing ourselves are saying that $20 to $25 reduction is what's expected by the consumer. That’s a huge hurdle that you have to get over to believe that the industry is going to digital.

[Brian Nagel:]

So as we think about this cycle versus last cycle. When you talk a bit about the bundling so to say of new gen hardware with a downloaded game, is that in itself a new factor versus the prior cycle. Is that something that could be weighing upon, at least initially, new generation sales of software.

[J. Paul Raines:]

You’re talking about the token that’s bundled, that’s packed into freight.

[Brian Nagel:]

Right.

[J. Paul Raines:]

What's interesting about that -- I think that it could be -- Brian, again, we think it’s a short term phenomenon, because it has been paid for. It's expensive to someone in the ecosystem and so we think it's an expensive phenomenon. But when we look at the attach rates, when you look at the physical attach rates of this new generation and you add -- and GameStop's perspective when you add our digital attach rate, what you see is, we are identical with the attach rate of the last launch. And so there is a shift that has taken place where there is more that is digital today, in part due to some of these free giveaways, but what you are seeing is still a full attach rate when you include digital in both of those equations.

[Tony Bartel:]

Some of that takes the form of downloadable contents…

[J. Paul Raines:]

Lot of it does.

[Tony Bartel:]

… that go along -- at the launch of the of such game.

[J. Paul Raines:]

The other, Brian, when you talk to publishers about the launch -- and I remember Titanfall, in many ways these tokens that are bundled in are really a marketing expense for the launch of the console. And every console marker wants to have a high install base the first year or so. So that’s why we believe some of these are going to be temporary items, because people are going to get tired of given away digital full games at some point.

[Brian Nagel:]

Okay. It's helpful. Thank you.

[Tony Bartel:]

Thank you.

[Operator:]

And our final question comes from Scott Tilghman with B. Riley.

[Scott Tilghman:]

Thanks. Good evening. I'll echo everyone else's sentiments, Paul, and say it's good to hear voice.

[J. Paul Raines:]

Thanks Scott.

[Scott Tilghman:]

I have a few questions and let me lay them out upfront, since the couple are quick. But, first off, one, on a trade credits, I'm wondering how soon you think you will be able to -- or whether you want to be able to offer the credits across the brands as you build out the Technology Brands? Second, on the buyback program, last year the program wasn’t quite as robust as you would have liked and you lost out on some opportunity. Wondering what you've done to perhaps change that this holiday season? And then the third question I had for you is really around publisher support for trade-ins. That’s been a key component in the background in the past that you had support especially on some of the sequel releases. Wondering if that support has changed at all? And related to that, what if any support you are getting from them as you work towards trying to build a digital secondary market?

[Tony Bartel:]

Let me take one and three and then Rob I will shift the buyback over to you. In terms of trade credits we are taking that today. Scott, in our locating Crickets, accept trades; our Simply Mac, accept trades; Spring Mobile accept trades and GameStop obviously accept trade. So we are already generating trade credits in all four of those brands, so that’s happening now.

[Scott Tilghman:]

But can they be used across brands?

[Tony Bartel:]

Currently, in some cases they can be, but not in all cases.

[J. Paul Raines:]

No, they can't. What's missing, Scott, is the use of the PowerUp program across all platforms and that is something we are working on.

[Tony Bartel:]

Yeah. And then on the publisher support for the trade credit, I mean, they -- what they see is they definitely see our trade credit as a form of unfunded discounts from their perspective. We fund that. So it obviously creates a strong sell-through of games which is what driving our strong market shares. When you look at our 56% frontline market share of Xbox One and PS4 games, as we said several times, much of that is driven by the fact that we have very strong trade credit performance on our the Xbox One and PS4 platforms. In fact, it's higher than what we've had historically. So there is not a lot of discussion that we have right now with our publishing partners around the buy/sell or trade, because we are driving significant market share. And Rob you want to talk about the buybacks?

[Robert Lloyd:]

I think this question was more towards how our publisher is participating in trade program.

[Scott Tilghman:]

Right. Historically, there's been some support when you had relaunch or I should say launches of sequel type titles, just wondering if that support has changed at all? And also what if any conversations you've had that you can share on the secondary market for digital that you've discussed previously?

[J. Paul Raines:]

We touched on the trade support first. I think what we've seen is an increasing support from the publishers on the trades tied to new releases. And if you look at this Fall, for example, in a four-week period you got a Grand Theft Auto, Far Cry, Assassin’s Creed, Call of Duty, Shadow of Mordor, Dragon Age, you'd have to be a very wealthy gamer to be able to play all those and the publisher has recognized that. So the ability for a gamer to buy one game play it for a week or two, trade it in. Buy the next game and so and so on, is important to the gamer, it's important to the publisher and obviously important to us as well. So we are seeing actually increasing support in that area.

[Tony Bartel:]

Absolutely. So there is definitely support that comes on various games, and like you said you done some of the platform changes or transitions and they are definitely supporting us on that.

[J. Paul Raines:]

And then on digital trades we have no comment, top secret. So…

[Scott Tilghman:]

Fair. And Rob you’re last on the buyback.

[Robert Lloyd:]

All right. We have been more aggressive this year in terms of making sure that our buyback plan take advantage of -- when the price moves down and I don’t see any reason why that would change in the fourth quarter.

[J. Paul Raines:]

As we used to say at Home Depot, we are not market timers. Right, Rob? That’s what you guys do for a living. So we’re just trying to buy shares.

[Robert Lloyd:]

Right.

[Scott Tilghman:]

And if I recall correctly your blackout window is typically about 24 hours after an event like this?

[Tony Bartel:]

Typically 48.

[Scott Tilghman:]

48. Thank you.

[J. Paul Raines:]

Ready for me? Okay, all right. Well, thank you everyone. We appreciate your support and look forward to speaking with you soon. Bye-bye.

[Operator:]

And ladies and gentlemen that does conclude today's presentation. We thank you for your participation.