GameStop (GME 3.27%)
Q1 2021 Earnings Call
Jun 09, 2021, 5:00 p.m. ET
- Prepared Remarks
- Questions and Answers
- Call Participants
Greetings and welcome to the GameStop first-quarter fiscal 2021 earnings conference call. At this time, all participants are in a listen-only mode. if anyone should require operator assistance during the conference. [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 first-quarter fiscal 2021 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 statements 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 investor's section of our website. Joining me today is GameStop's chief executive officer, George Sherman. On today's call, George will discuss our business and strategic initiatives, followed by a review of the financial results. Please note that we will not be conducting a Q&A session as part of today's call.
Now, I would like to turn the call over to the company's chief executive officer, George Sherman.
George Sherman -- Chief Executive Officer
Good afternoon and thank you for joining our first-quarter fiscal 2021 earnings call. GameStop is off to a strong start to the year from both the sales and operations perspective. First-quarter sales grew 25% year over year and we entered the period with $771 million in total cash on the balance sheet, an increase of more than $185 million compared to last year. Throughout the first quarter, we also took a number of steps that align with our previously stated priorities.
These steps include adding retail and technology talent to our senior leadership team by appointing a chief operating officer, chief growth officer, and chief technology officer. We also made a number of other senior hires across brand, merchandising, e-commerce, supply chain, and fulfillment. Each of these new additions has proven backgrounds and experience from companies such as Amazon, Google, and Intuit. Second, we further strengthen the company's balance sheet by raising more than $550 million in net proceeds from our April ATM program.
We also eliminated our long-term debt with a voluntary early redemption of our 2023 senior notes. Third, we expanded our fulfillment network by adding a 700,000 square foot facility in York, Pennsylvania. This new distribution center, which is expected to be operational by the fourth quarter of this year, will enhance our order fulfillment capabilities on the East Coast. Lastly, we continue to expand our product offering by adding natural extensions such as PC gaming, computers, monitors, game tables, and gaming TVs, just to name a few.
We intend to continue taking steps to evolve the business and build a world-class technology infrastructure while simultaneously capitalizing on the emerging console cycle. Today, we also announce a new ATM offering for a prospectus filing to offer up to 5 million shares of our common stock. The company intends to use any net proceeds for general corporate purposes as well as for investing in growth initiatives and further strengthening the balance sheet. Before I review the financial results for the quarter, I like to comment on this afternoon's press release announcing the hiring of a CEO and a permanent CFO.
Matt Furlong, our incoming CEO, has an impressive background from Amazon, where he most recently led Australia and oversaw significant growth in that region. Matt is a proven e-commerce leader with a firm understanding of how to delight customers. His focus, intensity, and work ethic will set the right tone to top the company as we began shifting to a growth phase. He also brings a strong understanding of brand and retail from his tenure at Procter and Gamble, where he began his career.
Mike Recupero, our incoming permanent CFO, also joined us from Amazon, where he is most recently CFO of North American consumer and CFO of Prime Video. Mike spent nearly two decades at Amazon and held a variety of senior finance roles across the organization. His experience helping business lines scale and achieve market leadership is exactly what we need going forward. I look forward to working with Matt and Mike to ensure seamless transitions in the coming weeks.
I also want to take this opportunity to thank Diana Jajeh for her guidance and willingness to take on additional responsibilities during her time as interim CFO. Diana will return to her role as chief accounting officer within the finance organization once Mike officially joins. Now, turning to our financial results. Net sales for the quarter increased 25.1% to $1.3 billion, compared to $1 billion in the prior-year period.
Importantly, we achieved this growth with a roughly 12% reduction in the global store fleet due to our strategic de-densification efforts and the continued store closures in Europe during the quarter due to the COVID-19 pandemic. Overall, gross margins were 25.9%, down 180 basis points from 27.7% in the fiscal first quarter of last year. The decline was primarily driven by an expected increase in mix of lower-margin sales. From an SG&A perspective, our reported SG&A expenses were $370.3 million, reflecting a decline of $16.2 million, or 4.2% versus reported SG&A in the first quarter of last year, and an 880-basis-point improvement on a percent of sales basis.
Adjusting for severance, transformation and other costs, our adjusted SG&A declined $29.5 million, or 7.7% year over year, and reflects nearly 10 percentage points of sales leverage. We reported an operating loss of $40.8 million, compared to an operating loss of $108 million in the prior year's first quarter. Adjusted operating loss was $21.6 million, compared to a loss of $98.8 million in the prior-year period. Income tax in the first quarter was an expense of $1.3 million, which compares to an income tax expense of $50.4 million in the prior-year first quarter.
Our effective income tax rate for the quarter was 2% and impacted by valuation allowances recorded in prior periods as well as the mix of earnings across the jurisdictions in which we operate. We reported a net loss of $66.8 million, or $1.01 per diluted share, compared to a net loss of $165.7 million, or a loss per diluted share of $2.57 in the prior year's first quarter. Our adjusted net loss was $29.4 million, or $0.45 per diluted share, compared to an adjusted net loss of $157.6 million, or a loss of $2.44 per diluted share in the fiscal 2020's first quarter. In the first quarter, we continue to focus on strategically de-densifying our global store fleet, closing a net total of 118 stores in the quarter.
At quarter-end, we operated 4,698 stores across the globe. Turning to the balance sheet. We ended the quarter with cash and restricted cash of $770.8 million, a $186.9 million higher than the end of the first quarter of last year. Overall debt levels compared to the first quarter of last year were reduced by $504 million and reflect the redemption of $202 million of senior notes due in 2021, the voluntary early redemption of $216.4 million of 10% senior notes due in 2023, and the $135 million paydown of the company's asset-based revolving credit facility.
At the end of the quarter, we had no borrowings under our asset-based revolving credit facility, no long-term debt, and $48.1 million of short-term debt, which is a low-interest loan from the French government, offered to us through the equivalent of the CARES Act in the U.S., related to the response to COVID-19. Capital expenditures for the quarter were $14.7 million. In the first quarter, cash flow from operating activities was an outflow of $18.8 million, an increase of $30.5 million, compared to an outflow of $49.3 million during the same period last year. In terms of our outlook, we remain optimistic about both the emerging console cycle and our future.
We recognize business risks remain elevated due to the pandemic and post-pandemic uncertainty, and we are not providing specific annual sales and earnings guidance. We are pleased with our start to the year and strong sales in May, which were up approximately 27% year over year. We remain focused on positioning GameStop for long-term growth as we prioritize delighting our customers and providing a differentiated and superior customer experience. Finally, given this is my last time speaking with you as GameStop's CEO, I want to share that I'm very proud of what we have accomplished over the past two years, including navigating the pandemic and positioning the company with strong liquidity and an improved platform for growth.
It's been a privilege to lead so many dedicated and talented team members who collectively possess a tremendous passion for the gaming industry. We have helped bring stability and strength to the business, including by de-defensifying our store footprint, reducing cost and debt, and returning our company to growth. I also want to take this opportunity to thank our customers for their belief in us and an amazing group of shareholders who have so demonstrably exhibited their support for us. I look forward to working with our newly appointed board and leadership team going forward.
Thank you again for your support and your interest in GameStop.
Questions & Answers:
Duration: 11 minutes
Eric Cerny -- Investor Relations
George Sherman -- Chief Executive Officer