Greetings, and welcome to GameStop's Second Quarter 2020 Earnings Conference Call. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Eric Cerny, Investor Relations. Thank you. You may begin.

Thank you, and welcome to GameStop's Second 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 in 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 this 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 second quarter performance and updates regarding GameStop's strategic framework for the future. Jim will then provide more detail on our financial results and expectations for fiscal 2020. And 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.

Thanks, Eric. Good afternoon, everyone, and thank you for joining us today on our second quarter earnings call. I hope each of you are safe and well. Our second quarter results show significant progress toward our strategic priorities as evidenced by our robust digital growth, meaningful expense reduction, and strong free cash flow generation. These results serve as a testament to GameStop's ability to navigate COVID-19 and bridge the period until the introduction of new consoles. I continue to be proud of our team and their dedication to our mission, our strategy, and importantly, safely serving our customers whenever and however they wish to shop during this unprecedented time. Turning to some highlights for the second quarter. Our comparable store sales declined 12.7%, which was ahead of our expectations and driven by continued consumer demand for gaming and the success of our e-commerce channel. While total sales declined 26.7%, they were also ahead of our initial expectations at the start of the year. Results exceeded our own expectations even as temporary store closures related to COVID-19 resulted in 13% fewer store operating days in the quarter versus the second quarter last year, and year-over-year, we have 10% fewer stores worldwide. Our quarterly sales results were negatively impacted by both the global pandemic and as we've discussed before, the last few months of a seven-year hardware cycle. We began the quarter with a modest sales decline in May as we responded to continued shelter-in-place mandates by expanding our ability to deliver exceptional service and product through the omnichannel digital capabilities we developed over the last year. In June and July, limited new hardware availability constrained sales as the early surge in demand, coupled with both the pandemic impacts on the supply chain and the end of the Generation 8 cycle created a significant limitation on new hardware and accessories availability from suppliers. Despite these emerging supply headwinds, our sales decline was a bit better than we expected as our investment in omnichannel capabilities and our ability to connect with our strong loyalty member base, particularly for new software launches, helped us engage with our customers and allowed us to meet their needs wherever, however, and whenever they choose to shop with us. We continue to make progress on our real estate and market de-densification strategy with a corresponding 10% decline in our worldwide store base year-over-year, which includes the completion of the wind down of underperforming Nordics region. Importantly, in the United States, where market de-densification represents the greatest opportunity, we've seen sales transfer of just under 40% of closed store sales volume to neighboring locations and online, well in excess of profit breakeven levels. Our high sales transfer rate and expanded omnichannel capabilities will continue to allow us to accretively optimize market and trade area profitability. Our e-commerce growth has been a major development for GameStop, accelerating our strategic objective to create a frictionless digital ecosystem by several years. As the pandemic shutdowns began, we quickly recognized that we were seeing a dramatic shift towards e-commerce and that this represented an historic opportunity. As a result, we diverted additional resources and focused towards our strategic imperative to build a frictionless digital ecosystem in an effort to leverage the moment and build momentum. Global e-commerce sales rose 800% for the quarter, and our e-commerce sales penetration grew from low single digits to 20%. We believe this shift is long-term and highly advantageous for our business. I mentioned in a prior call that I felt e-commerce should be at least a $1 billion business, and I'm happy to report we're on a trajectory to cross that milestone in 2020, well ahead of schedule, and we'll only build upon that in 2021 and beyond as we see this critical to our future. The quarter saw us deliver enhanced service capabilities and fulfillment options for our customers, such as curbside delivery, which we call Delivery@Doors, buy online pickup in-store, and enhanced ship-in-store and web-in-store capabilities. In addition to advancing our omnichannel capabilities, these capabilities also enable us to quickly adapt to changes in the shopping environment and service customers through any one of these fulfillment options. In the quarter, more than 90% of all buy online pickup in-store orders were fulfilled within 24 hours, including almost 70% on the same day. To that end, we'll soon be announcing two key advanced capabilities, including same-day delivery and a significant expansion of our consumer payment options, including an expanded focus on our private label credit card, several buy-now-pay-later options, and also leasing options for high-value items, providing our customers with a wide array of payment flexibility. We believe enhanced service and expanded payment options will improve GameStop's customer experience and expand affordable options to acquire the next generation of consoles. One final note on our strategic initiative to build a frictionless digital ecosystem. Later this month, we are set to launch our newly redesigned mobile app designed to create engagement and excitement for the gaming enthusiast. We'll be able to evolve the app experience to offer personalized and localized experiences, digital wallet capabilities, and a gaming news hub. We believe that the mobile app is going to play a key role in enriching our customers' experience inside and outside of our store shopping experience for all things gaming. We also saw strong progress in other areas of our strategy, most notably, our efforts to increase our efficiency and optimize our core operations. Jim will go into further detail on many of these endeavors, but I'm very pleased that our ongoing expense reduction initiatives have yielded a significant result as we leveraged our reported SG&A rate by 40 basis points in the second quarter, no small task in this environment, and I'm proud of the team's work here. These results were achieved despite the sales decline and were driven by a $134 million reduction in overall reported SG&A expense for the quarter and a $201 million decline in the first six months of fiscal 2020. On the merchandising side of the business, we are pleased with our initial launch of an expanded assortment in PC accessories and we'll be extending that assortment chain-wide later in the third quarter. While it is early, we absolutely believe GameStop can participate meaningfully in the PC accessory market with high-quality products that deliver strong margins. Likewise, we are pleased with our assortment of private label merchandise and their high sell-through rates for lower cost and higher margin structure. We continue to realize meaningful improvements in working capital efficiency led by a 50% reduction in inventory and a 30% decline in accounts payable. Our continued efforts led to material strength in period-end liquidity reflected in our $735 million cash balance even as we further reduced borrowings on our credit facility by $100 million within the quarter. These combined efforts fuel free cash flow of approximately $182 million, even with negative adjusted EBITDA for the period and navigating COVID-19, including store closures for most of May and early June. Overall, I'm pleased with the operational progress we made in the second quarter amid a challenging operating environment. As we begin the second half of the year, we are appropriately cautious yet excited about our opportunity to capitalize on the next generation of consoles that are expected to launch ahead of the holiday. In the second quarter, customers showed tremendous response to newness. And when there was newness available, customers chose GameStop. Specifically, we continue to realize market share leading results with Nintendo Switch hardware and key new physical software titles that launched in the recent few months, such as Animal Crossing and The Last of Us 2. Additionally, we have seen strong customer response to the latest technology in headsets and controllers when supply is available. Our customers show us GameStop remains a preferred destination. The success we noticed in the second quarter gives us confidence that GameStop will benefit from the acceleration in demand as new hardware and software is launched later in the year and well into 2021. And while there has been growth in digitally downloaded games, we believe there are several other areas in our favor that bode well for GameStop in the near and medium term. First, new consoles have a disk drive. So for the next seven years, the consoles will play both the physical and digital software that we sell. Importantly, across most regions of the U.S. and the world, there remains an increased taxation on broadband. With significant increases in work-from-home activities, many are forced to make trade-offs on broadband usage, a natural advantage for physical gaming. We are not debating the growth of digital gaming; however, we are simply saying that the life of physical game is here to stay for the foreseeable future. Likewise, we have and will continue to redouble our efforts on digital game sales, including subscription offers, which already represent a meaningful portion of our sales and will expand through recent digital revenue sharing agreements we have with select partners. Second, we have a strong loyalty base of customers who look to us to educate them on a wide array of new products. A huge asset we intend to leverage, particularly with the new consoles providing significant technological upgrades that provide even more immersive gaming experiences. Third, consumers like the physical aspects of games. They collect them, and they add value as a trade-in. So as software continues to evolve with dramatically better graphics, it does not take up valuable storage space, and disks are available to those without broadband Internet. With our current capabilities and added same-day delivery, we believe most consumers can get a physical game copy faster than it takes to download. Almost 70% of our buy online pickup in-store orders over the last four months have been fulfilled on the same day, many within an hour or two. In summary, we know the environment remains uncertain even as the excitement around the console cycle builds. To be clear, we believe this upcoming console cycle represents the most immediate short-term opportunity to win back sales volume. We will participate in the console cycle in a very significant way. However, we will also continue to plan conservatively by tightly managing expenses and inventory while leveraging our unique strengths, including our leadership position in gaming and our strong loyalty base. This combined with our focus on advancing our four strategic initiatives positions us to attain long-term profitable growth and drive value for our stakeholders. Now let me turn the call over to Jim to discuss our financials in more detail.

Thank you, George. Good afternoon, everyone. I'd like to take this time to walk you through our second quarter fiscal 2020 results, and then I will share some insight on how we're approaching the remainder of the year. As George just discussed, we're very pleased with our team's ability to adapt to the challenging operating environment during the second quarter. Our ability to swiftly pivot to leverage our investment in creating a frictionless omnichannel digital ecosystem, drive efficiencies across the business, and continue to optimize our core operations enabled us to generate significant positive free cash flow and exit the quarter with a materially stronger balance sheet, improved liquidity, and an overall healthier business model as we approach the console launches later this year. Turning to a review of the second fiscal quarter. Total consolidated global sales declined 26.7% to $942 million from $1.29 billion in the prior year period. The sales decline, which was slightly better than our internal expectations set at the beginning of the year, reflects the impact of, one, the last few months of the seven-year gaming console cycle; two, a 13% reduction in operating days due to the temporary store closures driven by the global COVID-19 pandemic; three, 10% fewer stores compared to the end of the second quarter last year as part of our de-densification strategy; and finally, delays in new software titles in response to the global COVID-19 pandemic, with several titles continuing to shift to later this year. Despite these headwinds, we reported a comparable store sales decline of 12.7% after adjusting for approximately eight percentage points from the impact of reduced operating days due to COVID-19. As a reminder, our permanent store closures, representing approximately six percentage points of our overall sales decline, are a result of our ongoing efforts to either de-densify certain geographies or exit unprofitable businesses. As part of those ongoing efforts, we continue to realize strong sales transfer, which is accretive to profitability, averaging almost 40% of sales recaptured through the transfer to neighboring locations or our online business. Relatedly, we're pleased to report that we completed the Nordics region wind down as of the end of July. In terms of category performance, while hardware and accessories declined 20% for the second quarter, reflecting the end of the Generation 8 console cycle, we did see better-than-expected sales in these categories with the recent surge in video game product demand during the COVID-19 pandemic era. As George mentioned, some of the sales declines later in the quarter are largely reflective of a lack of console hardware supply in the marketplace, given we're operating at the end of the console cycle along with some COVID-19-related effects within the supply chain. However, importantly, the Nintendo Switch continued to perform very well, and we leveraged our market share-leading position around the world on this product line. Additionally, we have and continue to leverage our pre-owned inventory, particularly in hardware and accessories to supplement lower new hardware availability and drive sales. Overall, software was down 31% for the quarter despite the strong performance of key titles such as Animal Crossing and The Last of Us 2. As George mentioned, when there is newness in video games, whether titles or consoles, we perform very well. However, our performance was somewhat negatively impacted as numerous title launches were pushed from the first half of the year into the latter part of the year. As an example, last year's second quarter benefited from the launch of Madden NFL 20, a title that launched in the third quarter this year. Collectibles were down 34% for the quarter as the opportunity for in-store basket additions tend to benefit from higher store traffic, and newness continues to push out with various franchise delays. From a product margin standpoint, gross margins declined due to product mix shifting heavily into hardware. Hardware sales represented about 47% of sales as compared to 43% last year. As a result, our overall global gross margins were 26.8%, down 420 basis points from the more software led 31% in the fiscal second quarter last year. Now turning to our expenses and expense management objectives. After adjusting for roughly $11.3 million in divestiture and severance expenses and costs related to the exchange of our March 2021 notes, our SG&A expenses were $336.9 million, reflecting a decline of approximately $108 million or 24% compared to adjusted SG&A in the second quarter last year. These results do not adjust for the approximately $2.7 million investment in additional protective and sanitary-related products and equipment in the quarter to ensure the safety of our associates and customers. Importantly, the pandemic has shown the resiliency of our associates and also continued opportunities to be more effective as an omnichannel retailer. In that light, while some of the lower SG&A will come back with sales volume increases in future quarters, we will maintain a large degree of operating efficiency throughout our stores and distribution centers. Importantly, a meaningful portion of the expense reductions are permanent and are directly related to our ongoing efforts to aggressively rationalize the overall cost structure of our business. We realized an operating loss of $85.6 million compared to an operating loss of $446.7 million in the prior year second quarter. Adjusted operating loss, excluding transformation, severance, and other charges, was $84.7 million compared to an operating loss of $45.8 million in the prior year second quarter, reflecting the seasonally slower second quarter period. Our effective tax rate as reported for the second quarter was a negative 19.2% and was impacted by certain discrete tax items primarily related to the sale-leaseback transactions and the mix of earnings across the jurisdictions in which we operate. Excluding those onetime items, our adjusted effective tax rate for the quarter was 1.2%. On a reported basis, our net loss was $111.3 million or a loss of $1.71 per diluted share compared to a net loss of $415.3 million or a loss per diluted share of $4.15 in the prior year second quarter. Adjusted net loss from continuing operations, excluding transformation, severance, and other charges, was $91.2 million or a loss of $1.40 per diluted share compared to an adjusted net loss of $32 million or $0.32 per diluted share. During the second quarter, we continued to focus on optimizing our global store fleet and strategically de-densifying certain markets. For the quarter, we closed a worldwide net total of 206 stores, bringing our total worldwide to 388 year-to-date, including our Nordics wind down. At the end of the quarter, we operated 5,122 stores worldwide, which is 602 fewer stores compared to last year. Given the strong sales and profit transfer rates we continue to experience, we're on track to close a total of approximately 400 to 450 stores worldwide this fiscal year. These closures, along with the growth in our online business and expanded omnichannel capabilities will allow us to more efficiently and profitably service our customers. Now turning to the balance sheet, which continues to be an area of focus for the team and a highlight for the second quarter. At the end of the fiscal second quarter, we had total cash of $735 million, well ahead of our expectations of between $575 million and $625 million. Importantly, as we ended the period with zero net debt. We ended the second quarter with total inventory of $474.6 million compared to $948.9 million in the prior year period, a reduction of 50%. As we've said previously, effective and efficient inventory management, including improved inventory turns and the resulting cash conversion cycle gains, continues to be a significant area of focus for us and is a key driver of the further improvement in working capital efficacy. Our accounts payable at the quarter end were $256.4 million, down from $368.3 million or 30.4% at the end of the second quarter of fiscal 2019, which is directly related to our ability to leverage a flexible supply chain and reduced purchase orders around the world at the very onset of the pandemic and not create a liability drag on the business or on cash flows. As a result of these many continued improvements, we realized positive free cash flow of approximately $182 million in the quarter. In addition to the free cash flow gains during the quarter, we completed the sale of our corporate jet and completed a sale-leaseback transaction for three of the five owned buildings being offered, adding a total of $51.8 million of liquidity, of which $43.2 million was related to the sale leaseback. Subsequent to the close of the second quarter, we executed sale-leaseback transactions for the remaining two buildings being offered, adding an additional approximately $43.7 million in liquidity, not visible in the Q2 balance sheet. Given the relatively stronger performance in the business and the proceeds from monetizing our real estate assets, we also paid down $100 million of the revolver borrowings and had only $35 million outstanding as of August 1. As previously announced on July 2, 2020, we completed an exchange offer and consent solicitation for the remaining unsecured notes due to mature in March of 2021. We exchanged roughly 52% of the notes that were set to mature in March of '21, well within our range of expectations, given the high retail ownership and the participation by the majority of qualified bondholders. The newly issued notes of approximately $216 million provide additional financial flexibility by replacing and extending the maturity to 2023 as we continue to focus on advancing our long-term strategy and objectives. With regards to roughly $198 million remaining of the 2021 notes, we anticipate redeeming those bonds over the course of the coming months between now and the maturity date. In the second quarter, we had $10.9 million of capital expenditures, bringing the year-to-date spend to $17.5 million. We continue to focus on only mandatory maintenance or near-term high-value strategic projects and anticipate that we'll invest between $55 million and $60 million in CapEx for the year before vendor allowances, a significant reduction from the roughly $80 million spent in 2019. I will note this is approximately $15 million more than our previous estimate, but reflects a holiday store merchandising refresh project for which we will receive a full reimbursement from vendors. Due to the uncertainty regarding the ongoing impact of COVID-19 on the business, we have suspended formal guidance. However, we do want to provide you with some of the puts and takes that will likely impact the remainder of the year. From a top line perspective, the third quarter will see several key software titles moved into Q4. And while the August sales trends are consistent with Q2, those shifts will create somewhat of a headwind for us in September and October. With the new product launches that generally drive our business as a specialty video game retailer shifting later in the year, such as Call of Duty and Cyberpunk shipping into Q4 and in the case of Microsoft's Halo Infinite launch shifting into 2021, we expect our sales results could be choppy for the remainder of the third quarter. Compounding the sales impact from the software title launches will be the limited availability of current generation new console and accessories supply as the availability of product from manufacturers remains tight. We have the ability to lean in on our pre-owned inventory, and we are very well positioned on that side of the business. But as we have anticipated for some time, new hardware sales will likely be pressured as we approach the launch of the new technology. The strength of the balance sheet, in particular, the positive free cash flow trend positions us well from a cash and liquidity standpoint to maximize the upcoming key hardware and software releases in the fourth quarter and further drive the strategic evolution of our business in 2021 and beyond. As it relates to our reboot objectives, we continue to be pleased with our progress and are seeing firsthand how these efforts are enabling us to navigate this challenging time. We remain intensely focused on continuing to execute actions to further strengthen our overall financial architecture, including all key profit and expense levers. This is important as a result of an organization like GameStop that is meaningfully more efficient and streamlined, employees can capitalize on a significant profit flow-through improvement as we experience expected robust sales growth in late 2020, led by both the expected new software title slate and the Generation 9 console launch.

Our first question comes from Colin Sebastian with Robert W. Baird.

A couple of questions. First off, I'm curious with the e-commerce and the digital volumes in markets or states where you have had primarily reopenings. Do you retain those e-commerce volumes? Or do they shift back to stores? I guess I'm trying to understand if some of that digital volume is incremental ultimately. And then secondly, just any commentary on EBITDA for the fiscal year. I think that was removed from the press release versus the last quarter. If you can just clarify that.

Yes. Colin, it's Jim. Yes, importantly, as we brought our stores back online, we've seen the contribution of e-commerce sales to the total maintain at levels that are north of 20%. Historically, that's been in the single-digit range, mid-single-digit range. So that's important because it's sustainable in e-commerce business; it's not just a simple channel shift. And then secondly, again, we're not providing any guidance and/or not reiterating any guidance. I mean, a couple of months more into the pandemic, and there's just still too many unknowns. So we're not reiterating any further guidance for the rest of the year.

Okay. And then one quick follow-up. On the digital-only hardware platforms, what is your view? Or what's the plan for sales of those platforms? And are there other ways that you can participate in digital software or subscriptions for those or other platforms?

Colin, it's George. We intend to sell both platforms for both vendors. And adjust those units, and we certainly anticipate participating in those programs. And we certainly see the opportunity to capitalize beyond just the initial gross margin on the console itself, and that means participating in digital sales and in subscription programs.

Our next question comes from the line of Steph Wissink with Jefferies.

We also have two questions. The first one, George, probably for you, is just help us think about the volumes of available units that you anticipate come fourth quarter at the hardware launch? Any sense of how we should benchmark to prior next-gen cycle launches? And then, Jim, one for you. As we think about the overall cost profile and the overall plans for store closures, are you thinking about SG&A per store as a measure? And also if you can give us around kind of the future state of the cost model relative to the store base and how you're thinking about overall cost productivity?

Yes. Steph, let me start off with the allocation for the new consoles, and I would just say that they're in line with expectations and probably with prior releases as well. There are elements of this that we don't know. Like you, we learn the price point of the Microsoft units today at the same time that you did. So we now know that we don't know what the breakout looks like specifically of the consoles themselves or the accessories as they go along with them. So just very much in that stage right now of the production data getting to our partners, and they're making the decisions as how it's going to be allocated out. But I'd say, as of this point in time, we would consider to be in line with what we expected.

On the cost profile, I think it's important to note that more than two-thirds of the SG&A changes from quarter to quarter and year-to-date are permanent. Some of this is tied to store closures, as you mentioned, but much of it relates to the cost-cutting initiatives we've been implementing for quite a while. We discussed this towards the end of last year, and while we're starting to see some of that anniversary in the third quarter, we really began to gain momentum in the fourth quarter of last year. There is still more progress to be made on this for the remainder of the year.

If I could toss one more in, just on the app. We haven't talked about that much in the past. But could you talk a little bit more about what the app features might be, how you expect to roll that out, the content side, and then how you're expecting to leverage your fairly robust CRM and customer data that you've been tracking for many years?

Yes. You're right, Steph. We haven't said a lot about it. We have a new Chief Digital Officer. We're very pleased with the developments that he's made on that front. And we've been in need of a new app. And I think, as you know, if you look at e-commerce, a large percentage emanates from a mobile device, not from a desktop or laptop any longer. So it was necessary work for us. It will be a far more intuitive app than what we've had prior. There is a game news section where you can catch up on the latest and greatest in gaming. We actually view that as kind of an extension of the social hub of gaming as well. You'll be able to keep track of things like your PowerUp Rewards. So there's a connection to that piece of it too. And it will launch in late September. So I think it's just something that we'll have more information on, certainly on the next call when it's in place and active, but we're certainly bullish about what it can do, and we're quite excited about being able to be at a point where it's almost ready to go.

Our next question comes from the line of Curtis Nagle with Bank of America.

Just a very quick one on the gross margins for the quarter. So I know you guys have kind of shifted up in how you report it. We don't have pre-owned numbers anymore. It is a little bit difficult to compare things. But just looking at some of the explanations you guys gave for what drove down the gross margins, predominantly mix in hardware, I think. I just can't really get to kind of square the numbers. I mean, is there something else going on here in terms of a big downshift in use, something going on with the margins there, markdowns on collectibles. Any more detail you could give would be a huge help.

Yes, Curt, it's Jim. There isn't really anything else going on. The primary factor is the hardware mix. The volume of hardware sold has significantly increased, with over 47% of sales compared to 43% last year. This mix is impacting our margin rate. The collectibles business has been somewhat more promotional, but not to a significant extent across all our various regions. Again, the changes are primarily due to the hardware mix and what that means for volume impact on overall margins.

Our next question comes from the line of Seth Sigman with Credit Suisse.

I did want to follow up on that last point because I guess we're struggling with that math a little bit as well. So we get the hardware mix. However, I think the mix shift was more severe last quarter to hardware. So can you just give us a sense of what else is going on within categories? And maybe more specifically speak to margin rates by category, I think that would be helpful year-over-year. And then the second point is, if you could comment specifically on the performance of pre-owned relative to the software bucket overall, that would be helpful.

Yes, I understand. There isn't much more to add regarding how hardware mix affects margins. The calculations are straightforward, and this factor primarily influenced the margin differences. Regarding pre-owned software, it's affected by store hours and customer traffic. When stores are closed or traffic is low, the pre-owned software tends to be less frequently included in purchases. With stores closed and minimal customer traffic through May and the beginning of June globally, this business understandably experienced lower sales volume.

Our next question comes from the line of Joe Feldman with Telsey Advisory Group.

Wanted to ask about traffic. It seems like when you've opened stores, you got more people in, as you talked about, it helps drive pre-owned, it helps drive other parts of the business. How are you thinking about holiday with traffic this year, given that it's going to be so different and your stores aren't very large, so you may have to control the flow coming in and out. Can you just share more about the plan for the holiday period?

Yes, that's a great question. We're encouraged by the growth in e-commerce, which simplifies things for us. Our capabilities, such as buy online and pick up in-store, help us manage store traffic, even allowing for appointment scheduling. Our presell process gives us visibility into upcoming demand, which aids our planning for major events and large customer gatherings. We're well-prepared, with more operational channels than ever. We can provide customers with contactless transactions, e-commerce purchases, buy online and pick up in-store options, and shipping from the store, all of which offer us significant flexibility for the holidays. Additionally, we expect a more distributed holiday season this year, with less focus on Black Friday and a longer promotional period throughout the fourth quarter. Moreover, with the console launches, we anticipate that demand will exceed supply, which will unfold on its own timeline. We feel confident about this. While we believe we may have lost some sales early on due to limited access to existing console hardware, and potential catalog sales tied to those purchases, we know that when there is new content—like Animal Crossing, the Switch, or Last of Us 2—we perform well and attract customers. We expect similar success with the upcoming console launch.

Got it. And as a follow-up, can you remind us about the real estate situation? I know the target for this year is 400 to 450 stores. How should we approach this moving forward? Will it involve a continued low single-digit reduction in the base to right size and de-densify? Or is it a two-year or three-year process? Can you refresh our memory on that?

Yes, sure. I mean it's going to take a couple of years. And again, as we think about each region is a little bit different. Your de-densification in Europe is going to look very different than it is in the U.S., et cetera. And so we're a large way through this process, but we're not there yet. Obviously, we gave the direction for the rest of the full fiscal year around 400 to 450 stores. But there are more to do out in 2021 as well. And again, our emphasis here is our short lease liability lives give us a great deal of flexibility so that we're not buying out of leases and that we're able to make these choices without capital outlay. So we'll continue to take advantage of that and leverage that favorable position with our leases into 2021.

Our next question comes from the line of William Reuter from Bank of America.

My first question is about your comments regarding the 2021 maturities. It sounded like you plan to act before the maturity date, either by tendering for those or buying them back in the open market. Is that correct? Also, what do you expect your lowest liquidity to be during the holiday period?

Yes, that is correct. Our intention is to redeem at select points between now and the end of March 2021, which is the maturity date. That is certainly our intention. We are not providing further guidance for the rest of the year. To reiterate, if we look at history, the amount of liquidity and overall cash improvements made by this management team in just over a year amounts to hundreds of millions of dollars in working capital and inventory turns. This reflects what we set out to achieve last year, and we have delivered significantly despite the global pandemic. We are incredibly confident in the strength of our balance sheet and liquidity as we approach the console launch, and we are in a strong position from a liquidity standpoint.

No, that's all come through, right. You're going to certainly generate more working capital than a lot expected. In terms of the cost savings, you had laid out a goal of $200 million this year. It looks like we've achieved that in the first half of the year. Are there still further cost savings that we're going to see in the back half of this year?

We'll start to annualize some of the costs out that we took out in the back half of 2019. So you won't see the same type of a run rate, but we're still continuing to work on elements of cost efficiencies. Some of that comes inside of the operations of our stores. Some of it comes in our overhead G&A. But we're still working on several elements. We're a lot of the way there. As you said, a lot of that $200 million, as I mentioned, more than two-thirds of it is permanent.

Okay. And then just lastly for me, implementing payment plans. Obviously, that can be a drag on working capital. I guess, what is the timing of when you're going to be implementing these plans? And I guess how much of the cash drain do you think those will be on the business? That's it for me.

Yes. They won't be at all. I mean, these will be POS third-party options that they can take. So we're not bringing on any liabilities. So there is no working capital impact whatsoever.

Yes, I'll just reiterate. None whatsoever. They're all third parties.

Our final question comes from the line of Bryan Hunt with Wells Fargo.

Just a couple for me, George and Jim. If I look back the last handful of years in ground, we didn't have a cycle, a new hardware cycle, your inventory went up somewhere between on the low end $350 million, on the high end $750 million going into the holiday season. What should we anticipate, given your new inventory discipline and the fewer amount of stores that you all have today versus, again, the last 5 years in terms of a potential inventory increase?

Yes, it's a great question, and I appreciate it. It's really focused on efficiency and the cash conversion cycle, which relates to inventory turnover. A couple of years ago, we were turning inventory globally less than four times. We are now approaching nearly five times on a trailing 12-month basis. Our goal is to achieve inventory turnovers above five times, and we are making progress towards that. We still have some work to do. This also means that the process of closing stores and transferring sales to those stores is significant because we are reclaiming many of those sales and the associated costs of goods sold and inventory movement. Looking at it on a more average basis, the business was carrying well over $1 billion in inventory on an annualized average. We will not reach those levels again. Even as we experience spikes during launches, especially with high demand, our inventory turns quickly during these events. I hope this information helps.

I have a teenager who's looking for a new controller, but we couldn't find anything in one to three stores. My family has been experiencing your hardware shortages firsthand. Can you quantify the impact of these hardware shortages on your sales and how they restricted sales in the current period, particularly in fiscal Q2 and maybe even in Q3?

Yes, I cannot provide a specific quantification. The key point, Bryan, is that while there was a flow of new products, it was inconsistent. This inconsistency is critical. When new items were available, such as the Switch and the new controller, the response from customers, including for our private label accessories, was excellent. However, it's hard to quantify that response accurately. We must also consider that part of this situation is due to a pull forward from the peak during the pandemic when people were at home. At the same time, manufacturers are transitioning from Generation 8 to Generation 9 in their production. This overlap is temporary as we start launching Generation 9 products.

All right. And then my last question is kind of theoretical and scenario. Can you talk about the potential opportunity that the conflict in between Epic and Apple may create for a third-party seller of hardware and software and how this conflict may bring to light advantages and/or opportunities for you all?

Yes. I won't say much other than that we're obviously very aware of the situation. We're following it very closely, and we're watching. And we always look for opportunity within the industry, and this is no exception. So we're watching from the sidelines at the moment, but watching closely.

Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would like to turn the call back over to Mr. George Sherman for any closing remarks.

Thanks very much. I just want to quickly thank the team at GameStop for all that they've done during the course of the quarter, the entire team, particularly our store teams, our distribution center teams, the refurbishment operations center, all those working on the front lines. And then really a call out for our omnichannel folks for affecting such quick change in such dramatic change so well. And thanks to all of you, as always, for your interest in GameStop. Appreciate it.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.