GameStop (GME) Q3 2020 Earnings Call Transcript

GameStop (GME 7.58%)
Q3 2020 Earnings Call
Dec 08, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the GameStop third-quarter 2020 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Eric Cerny, investor relations. Thank you, Mr. Cerny. You may begin.

Eric Cerny -- Investor Relations

Thank you, and welcome to GameStop's third-quarter fiscal 2020 earnings conference call. This 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 statement should be considered in conjunction with the cautionary statements and the 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 earnings release issued earlier today, as well as the investors section of our website. With me today are GameStop's chief executive officer, George Sherman; and chief financial officer, Jim Bell. On today's call, George will share insights into our business and strategic framework for the future. Jim will then provide more detail on our financial results and expectations for fiscal 2020.

Then, we'll open the call to take your questions. Now, I would like to turn the call over to the company's chief executive officer, George Sherman.

George Sherman -- Chief Executive Officer

Thanks, Eric. Good afternoon, everyone, and thank you for joining us today on our third quarter earnings call. I hope you all safe and well. The third fiscal quarter represents a key pivot point in our trajectory to stabilize, optimize, and transform GameStop.

We have made significant strides in stabilizing and optimizing our core operations and are excited about the transformational plan we are executing that will enable us to create long-term value as our industry continues its rapid growth. Our third-quarter results were largely as we had anticipated, marking the end of a challenging sales performance period as the industry transitions from Generation 8 to Generation 9 console video gaming products. The transition coupled with the impact of the global pandemic on consumer retail mobility and also to some extent supply chain disruptions is now segueing into what we see as a period of sustained growth, the beginnings of which I'll highlight in a moment. First, to summarize the third quarter, as we anticipated sales and profitability were down, the profitable store sales declining 24.6% in an adjusted loss of $0.53 per share.

But that notwithstanding, we saw 257% growth in our e-commerce sales versus the prior year, reflecting investments during the year that enhance our omni-channel capabilities. We continued to reduce expenses delivering over $315 million in SG&A expenses expense reductions so far this year. And we're pleased to end the quarter with almost 300 million more in cash the restricted cash compared to the end of the prior-year third quarter. And as I mentioned, we made significant strides in stabilizing and optimizing our core operations over the last 15 months.

And we're excited about the plan we are executing for the rapid evolution of GameStop. Despite the unprecedented environment during the global pandemic, our strong performance in November shows not only where we are, but the rapid pace of our transformation, beginning with the cost reductions and significantly improved balance sheet delivered by our ongoing work, followed by the console launch in early November and now our focus on key transformational strategies that will power future growth. Our goal is simple. We are positioning GameStop to be the leading global omni-channel retailer for all things gaming and entertainment.

We are encouraged by our successful efforts in 2020 to begin category and product extensions that increase our addressable market as well as by our customer's early response to an expanded products and services offering. At the forefront of this strategy is a digital first approach focused on delivering a best-in-class e-commerce experience, along with an optimized retail footprint. Together with enhanced fulfillment options, they provide our customers with the most comprehensive set of games and entertainment products and events wherever, however, and whenever they want them. The current console-based video games products are an important element of our strategy over the next few years, and we realized the very successful launch of the next generation products in November, driving 16.5% growth in comparable store sales.

This was the first positive comparable store sales month in nearly two years, despite being closed on Thanksgiving Day in North America and the ongoing negative impact of COVID-19, which saw the closure of the vast majority of our European storefronts for the entire month. In addition to the appeal of next generation of consoles, these results also reflect the significant improvements we have already made to the performance of our omni-channel platform as global online sales in the month of November grew 352%. In line with these early results, we expect to generate strong sales growth and profitability in the final quarter of the year. Let's review some of the additional highlights for the third quarter.

Jim will share some of the specific details of the quarter, but broadly speaking, our global store fleet saw on and off periods of store closure or restricted access to customers, particularly as COVID-19 cases accelerated around the world in October and then through November. We believe the pandemic and, importantly, the depression of retail customer mobility, lowered our comparable sales in the third quarter by 3 to 5 percentage points. Pivoting to our strategic accomplishments in the quarter, we continue to optimize our core business by improving efficiency and effectiveness across the organization, leading to a reduction in SG&A expenses of nearly $115 million for the quarter, bringing our total for the year to over $315 million versus 2019, roughly two-thirds of which we view as permanent. We continue to work quickly to optimize our omni-channel capabilities through the transformation of our physical store presence.

Through the third quarter, we have closed almost 800 stores worldwide since the beginning of 2019, representing both underperforming locations and de-densification in certain trade areas. We expect these closures to create a more profitable footprint. In the U.S., we continue to see strong sales and profit transferred to neighboring locations and e-commerce, an important point in supporting the continued optimization of our store fleet. Consumer affinity for our continually improving e-commerce experience in the ease of shopping and same-day delivery of our omni-channel fulfillment is increasing efficiency across our store footprint.

By the end of the fiscal year, we will close over 1,000 stores since we began this optimization journey in the middle of 2019, all with little to no capital outlay. Given the strength of our e-commerce sales and omni-channel capabilities, which I'll comment on momentarily, we now see the opportunity to close additional stores going forward in 2021 and 2022 as we optimize the profitability of omni-channel architecture. Overall, our goal is to serve our customers wherever, whenever, and however they choose to shop. We continue to improve our balance sheet.

We, again, improve working capital management with a 33% reduction in inventory and a 38% decline in accounts payable, ending the period was $603 million of cash and restricted cash, about $300 million more than the prior year third quarter. Finally, as a result of the continued strength of our balance sheet, we further enhance our capital structure with the announcement for the voluntary early reduction -- redemption of $125 million for approximately 63% of our outstanding notes due in 2021. As you know, we remain very committed to our efforts to build a frictionless, digital-first omni-channel ecosystem in our customers are responding, significantly changing the way they shop with us. Our focus on customer centricity and the best end to end customer experience has led to recent material gains in our e-commerce business, and we expect to build on this success, reinforcing the core focus of our go-forward strategy.

In the third quarter, we delivered a 257% increase in e-commerce sales versus the prior year, fueled by our elevated omni-channel capabilities. E-commerce penetration continues to grow and represents nearly 25% of total sales this year, up from a low single-digit percentage historically. We're also leveraging our expanded fulfillment capabilities such as curbside pickup, buy online pick up in store, ship and store. And in the third quarter, we rolled out same-day delivery for online transactions to 2000 locations and now have that option available in all of our U.S.

stores. Given a relatively high average transaction size, we can profitably partner with last-mile delivery services to provide customers with same-day delivery. Our new mobile app, which launched fully in October is much more engaging with the previous version and provides newly available functionality and a dramatically improved customer experience. The app is customizable enables customers to personalize features, select same-day delivery options, and browse a curated deal hub.

With more people downloading and using the app on a weekly basis and engaging with it for longer periods of time, we've seen a significant increase in engagement within the transactions, a 30% increase in conversion. With the increased usage, e-commerce sales originating from the app have now doubled. We are very pleased with the initial performance and look forward to rolling out additional features such as the gamer news feed and a comprehensive, easy to use digital wallet in early 2021. Going forward, you will see us leverage our GameStop ecosystem of stores, e-commerce and our app to deliver and enhanced 360 degree experience for consumers with products and services that are more relevant to how they connect and play in devices today and in the future, all with a focus on driving customer lifetime value.

These efforts have already resulted in and, we believe, will continue to lead to higher conversion, basket size, frequency of purchase, as well as a new customer acquisition for our power up loyalty program. As you appreciate these are very encouraging metrics. The progress we made during the quarter on our strategic initiatives, despite the COVID-19 backdrop, largely completes our optimization and stabilization phases of our strategy, which we've been working on for over the last 15 months and positions us for the next-phase transformation. Before discussing our future plans and opportunities, I'd like to quickly review the material accomplishments that we set out to achieve the launch of GameStop Reboot just 15 months ago.

In that time, we optimized for physical store presence through the ongoing de-densification and we'll have close over 1,000 stores by the end of 2020. We exited unprofitable businesses in the four Nordic countries and divested of the Simply Mac business unit. We continue to take costs out of the business significantly reducing SG&A by $316 billion year-to-date in over $440 million from our starting point in the middle of 2019. We increased productivity with an improved store labor strategy, investing in our e-commerce platform, driving for 433% growth in the channel to nearly 25% of sales year-to-date.

We improved inventory management with faster turns, delivering well over $300 million in working capital benefits, key to our ability to definitely navigate this pandemic. We monetized several assets, including sale – the sale leaseback transactions for five office buildings and the sale of our corporate jet, adding over $95 million in liquidity. We enhanced our financial flexibility with the completion of an exchange offer and consensual citation for 216.4 million of our unsecured notes. Reducing the amount due to mature at March, 2021 to approximately 198 million of which we have already announced the voluntary early redemption of 125 million.

By March, we have reduced the overall debt on our balance sheet by almost $600 million since early 2019. We have purchased 38.1 million shares since the spring of 2019, approximately 37% of shares outstanding at the time at a weighted average price of $5.21. And we significantly expanded our customer payment options, including elevated focused on our private label credit card, adding several new -- several buy-now-pay-later options and launch rent-to-own options to complete the payment stack. As we enter the fourth quarter, we have several tailwinds that set us up to win during this holiday season, starting with a new console cycle and including our digital omni-channel acceleration.

But to be clear, we are not just focused on the console video game market, and we're expanding the spectrum of products and services we sell to position GameStop to be a worldwide leader of games and entertainment for our customers. As many of you have seen, we have begun to expand our SKUs to include PC gaming, computers, monitors, game tables, and gaming TVs, to name only a few categories. Many of these SKUs will continue to be online exclusives. PC hardware and accessories represent a major market opportunity in industry research by NPD shows that the large majority of console gamers also play PC games.

Our overarching goal is to leverage the power and competitive advantages of our brand, significant loyalty base, dedicated and experienced sales associates and expensive omni-channel capabilities to drive lifetime value across all things games and entertainment. As customers evolve the way they play, we are evolving with them, expanding our addressable market as we expand our suite of products and services to meet their needs. In closing, as we look back over the five quarters since launching GameStop Reboot, we are very proud of the tenacity of our teams to not only produce meaningful results during the stabilize and optimize stages of our plan, but to do so all while delivering our products and services to our customers and doing so in the middle of an unprecedented business disruption caused by the global pandemic. We have made advancements that have begun to return our business to sales, growth and profitability, while enabling us to undertake the significant transformational work we now have under way.

As we look to next year and beyond, we are confident in our strategic plans and the transformation of improved results and long-term sustainable growth at GameStop. Now, let me turn the call over to Jim to discuss our financials in more detail.

Jim Bell -- Chief Financial Officer

Thank you, George. Good afternoon everyone. I'd like you take this time to walk you through our third-quarter fiscal 2020 results, and then I'll share some insights into the success of the new video console launch and how we're approaching the fourth quarter. As George discussed, we advanced our strategy in the third quarter, making significant progress on our near-term goals of optimizing our core business by reducing expenses, improving our inventory management, and strengthening our balance sheet and capital structure, and we did so while continue to focus on transforming GameStop for the future to deliver profitable long-term growth.

With the third quarter behind us, we are intently focused on maximizing all that the new console cycle has to offer, expanding our foundational work on our elevated omni-channel platform and more efficient operating model. And quickly but methodically evolving the business to expand our addressable market and support our long-term growth and profit objectives. As the gaming consumer and industry evolve, we see an opportunity to expand our addressable market, the honor historical predominant focus on the console video game market, with a comprehensive suite of product offerings and new services across all categories for games and entertainment. And, simply put, we're making it easier for consumers to find what they need at GameStop in an intuitive, relevant and frictionless shopping experience, all while taking a leadership role across the gaming entertainment categories.

Economically, this means adding incremental purchase occasions with higher-margin lines of business and therefore capturing greater share of wallet. Let me turn the review of the third fiscal quarter. As George mentioned, our third quarter sales performance was as expected as we transition through the final quarter of the Generation 8 console video game cycle, which included the shift of many software titles into the fourth quarter of this year and even into 2021. Further, we realized some top line softness in October as COVID-19 case spikes drove retail consumer mobility down.

Our consolidated global sale for the third quarter was $1 billion or 30.2% below the third quarter of 2019. The decline was a combination of the negative 24.6% comparable store sales, the impact of both foreclosures and lower retail customer mobility through most of our operating countries, and the impact of operating 607 fewer stores as part of our strategy to exit unprofitable businesses and optimize our store fleet through de-densification. We continue to see strong sales and profit transfer rates from that de-densification strategy. Geographically, our Australia and New Zealand business unit continue to perform very well relative to other regions, delivering a slight increase in sales for the quarter.

It is important note that performance in this region is driven by very little reduction in store operating days as the COVID-related retail operating mandates have generally not required full closure or limited access, except for short periods of time. In terms of category performance, hardware and accessories declined 24% for the quarter, and expected slight deceleration from the second quarter, largely reflected of a lack of hardware product in the marketplace, ahead of the launch of the new console, much of which was pulled forward into the second quarter. Despite this, Nintendo Switch continued to perform extremely well, increasing significantly compared to last year. And we continue to leverage our pre-owned inventory to drive sales.

Software was down 39% for the quarter versus 2019. A deceleration from the second quarter was driven by the lack of title launches, most of which shifted later into the fourth quarter and into 2021. Notably, Call of Duty launched in the third quarter of last year compared to the fourth quarter of this year. Our collectibles business was down 9% for the quarter, which represents a significant improvement sequentially from the second quarter performance as we realize the benefit of store traffic as stores begin reopening during the quarter after being closed during the second quarter.

From product margin standpoint, overall gross margins declined as the increase in the mix of higher margin collectible sales was more than offset by the mix of lower margin hardware sales and an increase in industrywide freight costs and credit card processing fees driven by our higher penetration of e-commerce sales. Our overall global gross margins were 27.5%, down 320 basis points from our more software-led 30.7 in the fiscal third quarter last year. Now turning to our expenses and expense management objectives. Our reported SG&A expenses were 360 million reflecting a decline of approximately 115 million or 24% versus reported SG&A in the third quarter last year.

The total year-to-date SG&A cost reductions reached over 315 million at the end of the third quarter, ahead of our expectations. Importantly, we continue to expect about two-thirds of these reductions to be permanent, reflecting our ongoing efforts to aggressively rationalize the overall cost structure of our business. While we expect some of these variable costs come back in future quarters as we return to more normalized operations of our stores and distribution centers, we are also steadfastly focused on further operational efficiencies to create additional permanent expense reductions in the future. To this end, we have more than doubled the original annual cost reductions we expect as a result of these actions, we took as part of the Reboot initiative, which began in 2019.

We reported an operating loss of $63 million, compared to an operating loss of $45.6 million in the prior year third quarter. Income tax in the third quarter was a benefit of 53.9 million driven by a change in the tax status of certain foreign entities that we've elected and the impact of the CARES Act, which a lot for a five year carry back period for certain current year tax losses. This tax benefit compares to an income tax expense of 31.6 million in the prior year third quarter. Our effective tax rate for the quarter was 74.1%.

On a reported basis, our net loss was $18.8 million, or a loss of $0.29 per diluted share, compared to a net loss of 83.4 million for loss per diluted share $1.02 in the prior-year third quarter. Adjusted net loss, excluding the gain on sale of assets related to the sale leaseback transactions with 34.4 million or a loss of $0.53 per diluted share, compared to adjusted net loss of $40.2 million, or $0.49 per diluted share in the fiscal 2019 third quarter. During the third quarter, we continue to focus on optimizing our global store fleet and strategically identifying certain markets. For the quarter, we closed a net total of 74 stores, bringing our total to 461 closures year-to-date.

At the end of the quarter, we operated with 5,048 stores, or 607 fewer compared to the end of the third quarter last year. Given the strong sales and profit transfer rates we continue to experience, we are on track to close nearly 700 stores in total this fiscal year and over 1,000 stores worldwide since we began this part of our strategy in 2019. Importantly, we're completing these closures generally with little to no capital outlay to do so. Now turning to our balance sheet, which continues to be an area of focus for the team, at the end of the fiscal third quarter, we had total cash and restricted cash of 602.6 million almost 300 million higher than the end of the third quarter last year, reflecting our continued efforts to optimize working capital.

Additionally, during the quarter, we completed the sale leaseback transactions to the remaining two office buildings being offered, contributing $43.7 million toward total liquidity. Accounts payable at the quarter end were $44.2 million down from $709.9 million at the end of the third quarter last year, reflecting 38% reduction, which is directly related to our ability to leverage a flexible supply chain and improve our inventory management. We ended the third quarter with total inventory of $861 million compared to 1,286.7 million in the prior year period, a reduction of 33%. Inventory efficiency in the third quarter continue to improve, as we realized the trailing 12 months inventory turn of 4.7 times from 4.1 times this time last year.

During the third quarter, we've reduced outstanding borrowings under the asset-based revolving credit facility by about $10 million, down to $25 million outstanding. At the end of the third quarter, we had $269.5 million of short-term debt and $216 million of long-term debt on the balance sheet. Subsequent to the quarter end, we announced the voluntary early redemption of $125 million in principal amount of our 6.75% senior notes due 2021. The redemption will take place on December 11, 2020, and covers approximately 63% of the outstanding '21 notes.

The voluntary early redemption is consistent with our actions to strengthen enhance our balance sheet, improve our depth profile and optimize our capital structure. In the third quarter, we had $15.1 million of capital expenditures, and we continue to focus our capital spending on near-term, high-value strategic projects and men for maintenance and still anticipate that we'll invest approximately $60 million to $65 million in capex for the year, some of which is offset by our various vendor support programs. Separately, today, we also filed a shelf registration statement and established a related optional after-market program to offer and sell up to $100 million of additional common stock. As I noted several times this year, we're extremely pleased with the results we have achieved to strengthen our balance sheet and advance our strategic objectives.

And believe we have more than sufficient liquidity and balance sheet strength to continue to execute on these endeavors, as well as navigate through any potential unknown or extended pandemic effects. As such, the timing and amount of sales of shares under the program, if any will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors we need to determine. However, as a pragmatic matter initiating this program provides us with the maximum flexibility and optionality to further bolster our balance sheet and liquidity position and increase flexibility gives us the ability to leverage opportunities to accelerate our transformational strategies, such as increasing the speed at which we elevate expand our omni-channel strategy while further ensuring minimal disruption from any potential further pandemic impacts around the world. Before moving to our fourth-quarter outlook, I want to spend a few minutes highlighting the initial results of the console launches that occurred in November.

By all accounts, these consoles are experiencing unprecedented demand, and we continue to work with the suppliers to meet that demand. Importantly, we continue to be able to achieve attachment rates for first-party and third-party software and accessories that are, in most cases, more than two times that of any other competitor, which is leading to us having opportunities to get additional allocations for these high-demand consoles. Given the strength of our performance so far with the console launch, we expect strong sales growth and profitability in the fourth quarter, something we have not seen in quite a few quarters. As George mentioned, November comparable store sales increased to 16.5% despite the impact of foreclosures throughout most of Europe and part of Canada in November.

In addition, our customers continue to respond favorably to our improved e-commerce experience, including our new app and flexibility of new fulfillment and payment options provided within our elevated omni-channel ecosystem. As a result, year-over-year e-commerce sales grew 352% in November versus the same month last year. Despite the strong start the fourth quarter, given the uncertainty around the evolving impact of COVID-19, we are continuing to suspend guidance. As we mentioned, we have seen varying levels of closures across our international operations, particularly in Europe.

And as things remain very fluid in the U.S., temporary store closures due to COVID-19 could be likely heading into the rest of December and January. Keep in mind the comparable store sales exclude the impact of permanent store closures and locations close 14 contiguous days or more due to the pandemic. Before I conclude, I wanted to elaborate a little further on our real estate strategy and efforts to optimize our fleet, especially de-densification over-stored markets and how we're approaching further actions. Looking at 2019 and 2020 combined, we will have close over 1000 stores over that timeframe with over 300 in 2019 and nearly 720 in 2020 and, importantly, have spent little to no capital to do so.

With our investments improving our omni-channel capabilities, including hiring almost 30 professionals with extensive digital experience, coupled with the impact that COVID-19 has had on our customers' desire to experience GameStop across our digital platforms, we've seen opportunity to further optimize a fleet in the coming year or two. These efforts come with EBITDA improvement, and we have had a very flexible store based in terms of lease expirations. And that will enable us to close stores at very little cost to the business. We will update you further on these objectives during our fourth-quarter and fiscal year-end earnings conference call.

In summary, we're off to a great start for holiday, and our associates are energized by the buzz and excitement generated by the console launches. We have long said that the newness and consoles and software drive our business, and we see that playing out now. While we are now benefiting from a nice tailwind, we're equally focused on transforming our company for the future and believe we have the right initiatives in place to achieve this goal, reshaping GameStop for effective market reach and offering a broader range of products and services in a games and entertainment space. In the short term, we will remain intently focused on continuing to improve our financial architecture.

But today, GameStop is a meaningfully be more efficient streamlined organization than it was 15 months ago, due to all the hard work that our teams have done as part of stabilization and optimization components of our strategy. As a result, we believe, we're poised to capitalize on significant profit flow through improvement as we experienced sales growth led by both the generation nine console launch and expected new software title slate, as well as the expansion of the transformation phase of our strategy and many exciting category product extensions and services, we will bring into our ecosystem in 2021 and beyond. I will now turn the call over to the operator, and we'll take any questions that you may have.

Questions & Answers:

Operator

Thank you. We will now be having our question-and-answer session. [Operator instructions] Our first question comes from Stephanie Wissink with Jefferies. Please proceed with your question.

Ashley Helgans -- Jefferies -- Analyst

Hi, this is Ashley Helgans for Steph Wissink. Thanks for taking our questions. On The SG&A reduction, you've been running about $100 million a quarter. What should we expect for pacing by quarter going forward? And what are the reaming cost buckets to address? And then how -- just on your performance in the quarter, how did it benchmark to industry figures of third-party data sources like NPD? Thanks.

George Sherman -- Chief Executive Officer

Yeah. Hi, Ashley. Thanks for the questions. With respect to SG&A, I mean, look, again -- we continue to address, you know, as you know, for several quarters now addressing SG&A in virtually every facet of business.

So, it's not going to – it won't be that different from the contribution of expenses for any quarter, as we've seen historically because we're really removing costs out of the entirety of the system. A lot of it is stores coming offline. A lot of it is productivity and our labor forces, both in the stores of DC, all aspects of our corporate G&A. So, it really is everywhere.

So, I don't know that that's going to change very much at all based on the history. And I'm sorry, second part of the question was?

Ashley Helgans -- Jefferies -- Analyst

Oh, yeah. Thank you. That was helpful, but the second part of the question was just on the performance in the quarter, how did you benchmark to industry figures like NPD?

George Sherman -- Chief Executive Officer

Yeah. I don't -- I'm not exactly sure how to comment the benchmark point. But, I mean, look -- I think, again, I think the quarter was in line with our expectations. And if you go back, just go back a year, I mean, when we first got here last summer and we set out on this journey, you know, we said, look, these next four quarters will be representative of exactly what we just saw.

And they met our expectations. And then, more importantly, what happens at the end of a cycle as we then transition, the next one is, you know, we're not competing on price at the end of a cycle. So again, it's a balance, but importantly, I think, the third quarter is behind this now. And I think the most important point here is that we are investing very well as we launched into the November timeframe and the launch of these consoles.

I think that's the critical message today is that we've made that transition, and we're-laser focused on moving forward.

Jim Bell -- Chief Financial Officer

Yeah. I think that's right. I mean, I think all I'd add is that, you know, we knew that we're at the end of --- we're going to experience some voidance in hardware as we got to the end of the cycle without the -- you know, the proper generations in place in any kind of quantity. We had some software titles moved from Q3 to Q4, and we are we've affected during this pandemic.

So, I mean, very clearly as waves breakout across the country, we feel the impact of that as shoppers become less, less comfortable, particularly going to a specialty store for a specialty purchase.

Ashley Helgans -- Jefferies -- Analyst

OK. Great. Thank you. And if I could just squeeze in one more.

E-com representing 18% in the next -- in the quarter, how much of the online business is now fulfilled from stores?

George Sherman -- Chief Executive Officer

Yeah, it's -- that's not a stat that we've actually supplied. But suffice it to say, it actually fluctuates. And this is important because it's based on what the consumer is demanding. And so, if it's a shift from store or a buy online, pick up in store, and direct-to-consumer element or absolute footfall into the box itself from a traffic pure POS traffic standpoint.

Again, I think it's fluctuating. That's important. That's what exactly what we mean by a frictionless, digitally led omni-channel retailer is letting the consumer pick when they want the product, then we deliver to them.

Ashley Helgans -- Jefferies -- Analyst

OK, great. Thank you so much. I'll pass it on to someone else.

George Sherman -- Chief Executive Officer

Thanks, Ashley.

Operator

Thank you. Our next question comes from Colin Sebastian with Robert W. Baird. Please proceed with your question.

Colin Sebastian -- Robert W. Baird -- Analyst

All right. Good afternoon. Thanks, guys. I mean, clearly, a lot of progress being made with e-commerce and with expense controls.

So, as it pertains to the transformation plan, I wonder, if you could provide some context and how this differs from what was outlined in the letter to the board? Because at face value, it seems like there's a fair bit of overlap in terms of the shift to digital first and shrinking the store base? That's my first question.

George Sherman -- Chief Executive Officer

What I'll only comment on our progress, as we see it, Reboot today and where we are today. We look at the business and we feel quite good about the financial stability measures that have been taken place. Over the period of Reboot, we reduced long-term debt by well over $500 million. We've returned $200 million to the shareholders through buybacks, which represents about 37% of the company.

We ended the quarter with about $300 million more cash than same quarter last year. And that's been a trend. I mean, that's something that's been pretty continuous throughout the Reboot process. You know, just prior question, your SG&A run rate of reduction seems to be $100 million of quarter.

Yes, it does. I mean, that's very much an important part of getting where he used to be. And then the progress that we've made on working capital has been tremendous. Unfortunately, that began at the very beginning of Reboot 15 months ago, and you know, what that's done to allow us to navigate through this pandemic has been -- I cannot overstate.

So, on the economic stability or financial stability front and good, we've made nice progress on digital for sure, from an e-commerce standpoint. We were behind. I mean, we were clearly behind in terms of digital penetration of sales. We are behind in terms of technology.

We still are very candid about having work to do, but we've come a long, long way very, very quickly. So, to be up 257% for Q3, to have penetration at that level and really spiking considerably higher than that during peak periods, to have made investments in our e-commerce capability, both in terms of the platforms and human capital that's driving it. The capability expansion that we've made, lease-to-own options, flexible payment terms of proprietary credit cards, all better alternatives for the customer how to shop, and then, you know, just kind of looking ahead, while this generation of console launches is very, very important to us and it is, and the demand is unprecedented, and it clearly is, we're working to be defined not purely as a console gaming retailer but as disturbing the entire gaming community I call the various verticals. So, we're glad to see sales of 16.5% despite being closed on Thanksgiving Day and being very comfortable in that decision to close on Thanksgiving Day.

We have a wide category expansion that, you know, both Jim and I mentioned during the course of our comments that are progressing well. And then really good progress on the digital first omni-channel store fleet optimization work. So, we look back. We feel pretty good about where we are and are poised for the next phase of work.

Jim Bell -- Chief Financial Officer

I mean, just to put a finer point on it. Again, the second pillar that we launched in Reboot last year in the August, September timeframe was to build a frictionless digital ecosystem. That's exactly what we've done. That is leading with technology, leading with a digital footprint that optimizes our e-commerce evolution through the investments in data and technology as well as how it balances with right foot for the stores.

We launched that when we got here launched our Reboot program. So, I think that's the point George made. We did it, and we've been making some real strides against it.

Colin Sebastian -- Robert W. Baird -- Analyst

Thanks. That's helpful. In the release, there's some commentary around providing growth in reference to 2021. So, I just wanted to clarify if that's specifically referencing sales volumes next year or something else?

Jim Bell -- Chief Financial Officer

It's absolutely referencing sales volumes next year.

Colin Sebastian -- Robert W. Baird -- Analyst

OK.

George Sherman -- Chief Executive Officer

And I'd say, two-part response to that. First of all, we have growth initiatives in place. Second of all, the console launch is not a Q4 phenomenon, as you all know. I mean, I think there'll be great carry forward demand into the entirety of next year and beyond.

Colin Sebastian -- Robert W. Baird -- Analyst

OK. And then lastly, do you have target for the cash balance expected at the end of the fiscal year?

George Sherman -- Chief Executive Officer

Yeah. We haven't put it out there, but I will just say consistent with the trajectory that we've been on.

Colin Sebastian -- Robert W. Baird -- Analyst

OK. All right. Thanks, guys.

George Sherman -- Chief Executive Officer

Yeah. You bet.

Operator

Thank you. Our next question comes from William Reuter with Bank of America. Please proceed with your question.

William Reuter -- Bank of America Merrill Lynch -- Analyst

Hi, I just had two quick ones. The first is, and I don't think the question was asked this way, in terms of the November performance, was it in line with your expectations?

George Sherman -- Chief Executive Officer

Yeah, certainly was in line with expectations. Again, we knowingly took a chunk out of that by closing on Thanksgiving. I think it's fair to say that in this environment, the sales compression that you might sometimes see is not prevalent. So, we knew that that was going to be an investment in our people and into safety.

And we don't second guess that for a moment. So yes, if you make that change, it is in line with our expectations.

William Reuter -- Bank of America Merrill Lynch -- Analyst

OK. And then, in terms of the new shelf, you know, I saw that you mentioned general corporate purposes. Would you consider issuing stocks to repay debt under that program?

George Sherman -- Chief Executive Officer

No, that's absolutely not the intent. The intent here is to simply optimize flexibility and optionality. Period. There is a lot of unknowns going on in the marketplace with respect to this pandemic, ongoing flex of cases across the world, the impacts on our own businesses.

And we're not immune to that, right? And, in that regard, look, we're going to continue to execute our strategies that have bolstered and strengthen our balance sheet. And you see all the work that we've done, including, if we go back to even the long-term debt levels in early 2019 until today, it's -- you know, as of this coming Friday will have reduced our long-term debt over $530 million, by March of '21, they'll be over $600 million. In that same timeframe, that same roughly 24-month timeframe, plus or minus, we also returned over $200 million to shareholders. So, I think -- look, the goal is to continue to focus on running the business and optimizing we run the business, but also be very pragmatic and make sure that we have capital flexibility with no intention to do anything other than maintain our flexibility.

Hopefully that helps you.

Jim Bell -- Chief Financial Officer

And as far as [Inaudible] is concerned, we don't need it. We don't need it. Bottom line.

George Sherman -- Chief Executive Officer

Yeah, absolutely. And as I mentioned, last Friday is the first voluntary early redemption of $125 million of the remaining March '21 notes.

William Reuter -- Bank of America Merrill Lynch -- Analyst

Great. I'll pass it to others. Thanks so much.

George Sherman -- Chief Executive Officer

You bet. Thank you.

Operator

Thank you. Our next question comes from Joe Feldman with Telsey Advisory Group. Please proceed with your question.

Joe Feldman -- Telsey Advisory Group -- Analyst

Yup. Thanks. Hi, guys. With regard to the consoles, you know, how did your allocation compare to prior cycles? I mean, presumably, you sold every single unit that you got.

Is there still -- I assume there's still a very heavy backlog. And what are your thoughts on allocation through the rest of the period? We know Sony has come out and said that they plant produce more. So, can you share any thoughts on that?

George Sherman -- Chief Executive Officer

Yeah. I think that the demand has been unbelievable, Joe, as you mentioned, and we don't see any end of that insight. So certainly, these are fabulous pieces of technology. The demand is terrific for it.

Any allocation that we get, and I think I've mentioned this on past calls, the answer is we always want more. I will say the competitive set has changed between console launches really with the evolution of direct-to-consumer from the OEMs themselves. So, you know, that tells you a bit about what the allocations look like versus last time around. But we're playing meaningfully, which was our objective and we're winning well.

So, I think one area in a point of differentiation for us, and it's been part of our premise all along, is we attach differently. So, when you look at accessories first-party software, we attached differently and that's been recognized, and we have seen some level of a reward for that. And we expect it to be a differentiating point for us going forward in terms of allocation.

Joe Feldman -- Telsey Advisory Group -- Analyst

Thanks. That's helpful. And then just another question with regard to the cash balance, I mean, I know that some of its restricted, but yes, 603 million, presumably, yeah, you generated more in the fourth quarter. Let's say, you know, we're getting through this cycle with the pandemic.

I understand the next couple of months are going to be rough. But, I guess, how are you thinking about cash allocation or cash usage at this point? You know, I know we've talked to people that are hoping you were going to buy back more stock in the coming year, so -- or return to that. So, I guess I'm curious how we should think about that going forward.

George Sherman -- Chief Executive Officer

Yeah. Thanks, Joe. The short answer is, again, you know, nothing's off the table. I mean, our job is to find the optimum balance of capital allocation, which starts with, ultimately, the investment in the transformation of the business for future growth and profitability.

That's the first point. And we'll continue to do that. And if it means accelerating those investments to bring that return in in a more rapid fashion, we'll do that. It also is the fine balance of the capitalization of the business.

And ultimately, what is the right level of debt? We think we're approaching that after we get done paying down the rest of these March 21s. And, you know, then outside of that, certainly always consideration to return capital to shareholders, as well as we've proven, like I said last year in 2019, returned over $200 million a share, which I think every one of those is on the table. We are always looking to find the optimum balance of capital allocation.

Jim Bell -- Chief Financial Officer

And just to kind of add the obvious the underlying environment matters, certainly, we don't know what a few more months means right now. We're obviously encouraged by a vaccine, just like all of you are. But we see more impact ahead, and we don't know the exact timelines or protocols for that nor does anybody at this point. So, we look at something that we have to be guarded about into the future is, you know, there's no particular end date insight yet.

This is something we're going to be dealing with for the indefinite future.

Joe Feldman -- Telsey Advisory Group -- Analyst

Understood. Thanks, and good luck with this holiday season, guys.

Jim Bell -- Chief Financial Officer

Thanks, Joe.

Operator

Thank you. Our next question comes from Seth Sigman with Credit Suisse. Please proceed with your question.

Seth Sigman -- Credit Suisse -- Analyst

Hey, guys. Thanks for taking the question. I wanted to follow up on the Q4 commentary. And I just want to confirm the language here.

So, in the release you talked about positive year-over-year sales growth. I just want to confirm. Are you guiding to year-over-year profitability growth as well?

George Sherman -- Chief Executive Officer

Yeah, we're not guiding to anything. The comment was specific to growth and profitability in the fourth quarter. And just to be clear, again, we're not guiding to anything. You know, again it's -- I think we've been pretty straightforward on that.

Seth Sigman -- Credit Suisse -- Analyst

What would you call -- your sales year-over-year is in, I mean, you're saying sales year-over-year will grow and there's a comment about profitability. I'm just trying to confirm are you saying year-over-year profit growth in addition to year-over-year sales growth?

George Sherman -- Chief Executive Officer

Yes, it was just notation was for the fourth quarter.

Seth Sigman -- Credit Suisse -- Analyst

Yes, for the fourth quarter, I'm asking.

George Sherman -- Chief Executive Officer

Yes, that's correct.

Seth Sigman -- Credit Suisse -- Analyst

OK, so year-over-year profit growth. So, then the related question is, given the unfavorable mix of hardware, would you expect gross profit to be up as well? You know, obviously, you're going to have some mixed impact here. Comps are going to be up but you do have the negative mix. So gross profit up? Or is it really coming from the cost savings?

George Sherman -- Chief Executive Officer

A little bit of both. You know, gross dollar -- gross profit dollars, because look, we're talking about volume rate, so you get a little bit of from the overall top line as a flow-through, but then you also take advantage of the flow-through the bottom line as a result of your expense structure. That's a lot more optimized than it was last year.

Seth Sigman -- Credit Suisse -- Analyst

OK. Interesting. OK. And then just a follow-up question on the market share question earlier, your growth rate did seem to trail the industry per-NPD.

I'm just curious, what would be causing that you feel like, you know, e-commerce even though it's clearly progressing? You feel like that's been one of the reasons for lagging, or anything else that you would highlight? And then, of course, with all the initiatives, I'm curious, what do you think is going to be most incremental to regain share as you sort of look out over the next, you know, 12 months or so?

George Sherman -- Chief Executive Officer

Yeah. Look, I think there are periods during the course of Q3, certainly for us during the pandemic, where we certainly are aware of the fact that we lost some share. We've had close stores. We've had a competitive situation where some of our competitors were open for business that we weren't.

And you've got a very guarded shopping environment, obviously, as it applies to the brick-and-mortar aspect of our business. Where there's a reluctance, there's a significant decrease in footfalls across retail in general. And we're not immune to that in any way, shape, or manner. So, I think you've got a prescribed shopping trip to GameStop to get gaming, and you've got a general crypt elsewhere for multiple purposes.

I think that probably is factored in. On the flip side, again, when there's newness in the marketplace, we excel. We tend to lead in market share for those software releases, those new game releases. So that is our strength.

We actually believe that we're going to be in a position to begin to claw back market share going forward. As we cycle some of those closure pereas, as we're able to get customers back in stores and lovers the full omni-channel suite that we offer now. We've gained certainly through our increases on e-commerce, but there's still a significant impact on the brick-and-mortar aspect of the business right now. And there will be for a while longer.

Jim Bell -- Chief Financial Officer

Yeah, I just had one comment in the market share piece, I mean if you look at the cyclicality back in 2013 2014 Gen 7, Gen 8 transition period, you'll saw at the end of the cycle, we tend to lose a little bit more a couple points of market share. And at the beginning of the cycle, we gain those points of market share. And the reason -- a huge reason for that and that is our expectations we head forward. But a big reason for that is, again, the technical consultation of our expert gaming associates, they're in the stores.

And that's important with the advancements of this technology.

Seth Sigman -- Credit Suisse -- Analyst

OK, thanks. Thanks, and good luck.

Jim Bell -- Chief Financial Officer

Yeah, you bet.

George Sherman -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Curtis Nagle with Bank of America. Please proceed with your question.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

Good evening. Thanks very much. I just wanted to continue digging on the comment about the 16.5 comp in November. And I just how to think about how the rest of the quarter plays out? November was obviously the quarter when comps was launched.

I think at least it's going to be the only quarter where, you know, the industry will see a material sell-through due to the shortages. And November likely brought a lot of traffic into stores and websites. So, think about December or January, where you and your peers are likely to have a ton of supply, at least, I think. Do you think you see reversal traffic? How do we think about comps and positive? What's the setup, you know, for those first few months, where again, you just don't have that the traffic driver and any materiality?

Jim Bell -- Chief Financial Officer

Yeah. I think, first of all, you know, let's take any potential effects, unknown components of a pandemic off the table because, look, we see it time and time again that it affects retail mobility. So, let's just assume no one knows the impact of that, take it off the table. And a very simple fact outside of that is that, again, we're continuing to execute here in the fourth quarter.

This is not a couple of weeks in the month of November. So, to be clear, that's not what this isn't, and it's certainly not the fourth quarter either. As George said earlier, this is a multiyear evolution here, and this is just the beginning

George Sherman -- Chief Executive Officer

Yeah. And look, there's going to be impact on December, as you know. I mean, you've likely heard about global supply chain issues on every call that you've been on. And it certainly is a fact.

And it is a mitigating factor, but we have newness in December. We have a release coming up in two days called Cyberpunk 2077, which is a big driver for us. And we certainly believe that there are other events that will drive traffic in the month of December that will continue this.

Jim Bell -- Chief Financial Officer

The other thing is, again, I don't want to miss not playing to the fact that we have added so much customer flexibility, both in our – in delivery options and payment options, these are all resonating incredibly well with our consumers and giving us an advantage. So again, this is how the -- you take advantage of a full omni-channel execution. So that -- those are continuing to be part of our business as we move in through December and beyond as well.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

OK. And then just as a quick follow-up. Any commentary on the use business, how does that trend over 3Q? And I guess, how is the hardware portion of that segment doing? Maybe seeing a little bit of boost near-term, just given supply constraints across both next and current-gen consoles? And how software is performing well?

Jim Bell -- Chief Financial Officer

Yeah. On the hardware side, for the third quarter as should be expected, I mean, again, you've got lower supply almost. As we go forward, and what I mean by it is our ability to intake, when our stores are closed, we're not in taking pre-owned hardware, right? I mean, that's just a natural equation. However, as we're navigating through this launch, a big part of that is our engagement with our customers with pre-owned product.

And so we're positioning quite well. And I think what's different though, as we go forward this time around is that the OEMs are not making the prior-gen product anymore, and that's critical. Because if you want a prior-gen product, a lot of people do, there's demand in that marketplace. We are really your shop to go get that.

George Sherman -- Chief Executive Officer

Yeah. I'd emphasize that last point. We're bullish on pre-owned hardware for just that reason. And just, again, go back in time a little bit, the intake issue is pretty self-explanatory.

We have pre-sales and then we have launch events for new next-generation consoles. You're not going to get my old console until I get my new console. So, there's an inherent delay in that happening. And then it does.

And that's where we are right now is kind of in the fulfillment and high demand phase, working from those preorders, but really in a very construction environment going for, but we actually think that this can be a bit of a renaissance for pre-owned gaming with the absence of the older-generation consoles out there. And we have them, and we can remanufacture them.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

George Sherman -- Chief Executive Officer

You bet.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to George Sherman for any closing remarks.

George Sherman -- Chief Executive Officer

Yeah, let me have Jim to make one quick comment, and then we'll close off the call.

Jim Bell -- Chief Financial Officer

Yeah, I just wanted to call your attention. This quarter, we added -- as we're making this transformation, we added some slides to our IR website. So, I'll call your attention to those that continues to iterate and lay out for all of you our -- this -- our journey. So, please take a reference to those George.

George Sherman -- Chief Executive Officer

Yeah, thanks to everyone, wishing you a safe and happy holiday. It's obviously been a quite an unusual year. Hope you have a great end it. I want to kind of lay out our communications cadence going forward.

We will provide you with holiday sales results in early January, and then more details regarding our strategy and our work at the ICR conference happening virtually in January and again following our fourth quarter year-end results. Thank you, all, very much.

Operator

[Operator signoff]

Duration: 79 minutes

Call participants:

Eric Cerny -- Investor Relations

George Sherman -- Chief Executive Officer

Jim Bell -- Chief Financial Officer

Ashley Helgans -- Jefferies -- Analyst

Colin Sebastian -- Robert W. Baird -- Analyst

William Reuter -- Bank of America Merrill Lynch -- Analyst

Joe Feldman -- Telsey Advisory Group -- Analyst

Seth Sigman -- Credit Suisse -- Analyst

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

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