Earnings Call Transcript - GME Q3 2020

Operator, Operator

Greetings, and welcome to GameStop's Third Quarter 2020 Earnings Call. As a reminder, this conference is being recorded.

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 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 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, CEO

Thank you, everyone, for joining us today on our third quarter earnings call. I hope you're all safe and well. The third fiscal quarter marks an important point in our journey to stabilize, optimize, and transform GameStop. We have made substantial progress in stabilizing and enhancing our core operations and are eager about the transformational plan we are pursuing to create long-term value as our industry rapidly grows. Our third quarter results were mostly in line with our expectations, closing a difficult sales performance period as the industry transitions from generation 8 to generation 9 console gaming products. This transition, along with the effects of a global pandemic on retail mobility and supply chain disruptions, is evolving into what we foresee as a sustained growth period. To summarize the third quarter, sales and profitability were down as we predicted, with comparable store sales falling 24.6% and an adjusted loss of $0.53 per share. However, we experienced a remarkable 257% growth in our e-commerce sales compared to the prior year, reflecting our investments that enhanced our omnichannel capabilities. We continued to cut expenses, achieving over $315 million in SG&A expense reductions this year and are pleased to finish the quarter with almost $300 million more in cash and restricted cash than at the end of the previous year's third quarter. We made significant progress in stabilizing and optimizing our core operations in the last 15 months, and we're excited about the plan we are executing for GameStop's rapid evolution. Our strong performance in November illustrates not only our current position but also the quick pace of our transformation, starting with cost reductions and an improved balance sheet, followed by the console launch in early November, and now focusing on key strategies to drive future growth. Our goal is straightforward: we aim to position GameStop as the leading global omnichannel retailer for all things gaming and entertainment. We are encouraged by our successful efforts in 2020 to begin expanding categories and products that broaden our market and by the positive early response from customers to our expanded product offerings and services. Central to this strategy is a digital-first approach focused on providing a top-notch e-commerce experience alongside an optimized retail presence. Enhanced fulfillment options give our customers access to a comprehensive range of games and entertainment products whenever and however they prefer. Our strategy regarding console-based video games will be significant over the coming years, having successfully launched next-generation products in November, resulting in a 16.5% increase in comparable store sales, marking our first positive comparable store sales month in nearly two years. This comes despite being closed on Thanksgiving Day in North America and the negative impacts of COVID-19, which led to many European store closures throughout November. The appealing next-generation consoles contributed to these positive results and reflect the substantial enhancements we have made to our omnichannel platform, as global online sales in November soared by 352%. Given these early results, we foresee robust sales growth and profitability for the final quarter of the year. I will outline some additional highlights for the third quarter. Jim will provide specific details later, but generally speaking, our global store fleet experienced intermittent closures or restricted customer access, especially as COVID-19 cases surged in October and November. We believe the pandemic and reduced consumer mobility diminished our comparable sales in the third quarter by 3 to 5 percentage points. In terms of our strategic achievements this quarter, we have continued to enhance our core business by increasing efficiency and effectiveness across the board, leading to an SG&A expense reduction of nearly $115 million for the quarter, totaling over $315 million for the year compared to 2019, two-thirds of which we consider permanent. We've been proactive in optimizing our omnichannel capabilities by transforming our physical store presence. Since early 2019, we have closed nearly 800 stores worldwide, targeting underperforming locations and decreasing density in certain areas, expecting this to result in a more profitable store footprint. In the U.S., we are witnessing strong sales and profit transfers to neighboring locations and e-commerce, supporting the ongoing optimization of our store fleet. Customers are increasingly favoring our improved e-commerce experience and the convenience of same-day delivery available through our omnichannel fulfillment options. By the end of the fiscal year, we plan to have closed over 1,000 stores since we began this optimization journey in mid-2019, all with minimal capital expenditure. Given our robust e-commerce sales and omnichannel capabilities, we foresee the opportunity to close more stores in 2021 and 2022 as we enhance the profitability of our omnichannel structure. Overall, our aim is to serve our customers anytime, anywhere, and however they choose to shop. We have continued to strengthen our balance sheet, achieving a 33% reduction in inventory and a 38% decline in accounts payable, concluding the period with $603 million in cash and restricted cash, approximately $300 million more than last year's third quarter. Due to our solid balance sheet, we further improved our capital structure by announcing the voluntary early redemption of $125 million, which is about 63% of our outstanding notes due in 2021. We are committed to building a seamless digital-first omnichannel ecosystem, and our customers have responded positively, significantly altering the way they shop with us. Our emphasis on customer-centricity and the best end-to-end customer experience has led to substantial gains in our e-commerce business, and we anticipate building on this success, which is a central focus of our ongoing strategy. In the third quarter, we achieved a 257% increase in e-commerce sales compared to the previous year, driven by elevated omnichannel capabilities. E-commerce now accounts for nearly 25% of total sales, a significant increase from low single digits in the past. We are also utilizing our expanded fulfillment capabilities, including curbside pickup, buy online pickup in-store, and shipping from store. In the third quarter, we introduced same-day delivery for online purchases to 2,000 locations, making it available in all U.S. stores. Our relatively high average transaction size allows us to partner profitably with last-mile delivery services for same-day delivery. Our newly launched mobile app, which became fully available in October, offers much more functionality and a significantly enhanced customer experience. The app is customizable, allowing users to personalize features, select same-day delivery options, and browse a curated deals hub. With a growing number of downloads and increased engagement, we've noted a 30% rise in conversion rates. As a result, e-commerce sales originating from the app have doubled. We are excited about the app's initial performance and are looking forward to introducing more features in early 2021, such as a gamer news feed and a comprehensive digital wallet. Moving forward, we will leverage our ecosystem of stores, e-commerce, and the app to provide a 360-degree enhanced experience for consumers with products and services that resonate with their current and future gaming needs, focusing on customer lifetime value. These initiatives have already resulted in improvements in conversion rates, basket sizes, purchase frequency, and new customer acquisition for our PowerUp loyalty program. These metrics are very encouraging. The strides we've made this quarter in our strategic initiatives, despite the challenges presented by COVID-19, largely complete our optimization and stabilization phases, setting the stage for the next phase of transformation. Before discussing our future plans and prospects, I want to review the key accomplishments since launching GameStop Reboot 15 months ago. During this time, we've optimized our physical store presence through ongoing adjustments, resulting in over 1,000 store closures by the end of 2020. We exited unprofitable markets in four Nordic countries and divested the Simply Mac business unit. We have continually reduced costs, significantly cutting SG&A by $316 million year-to-date and more than $440 million from our starting point in mid-2019. We improved productivity with a refined store labor strategy and made investments in our e-commerce platform, driving a 433% growth in that channel to nearly 25% of sales year-to-date. We enhanced inventory management with quicker turnover, creating over $300 million in working capital benefits essential for navigating this pandemic. We've monetized several assets, including sale-leaseback transactions for five office buildings and selling our corporate jet, adding over $95 million in liquidity. Additionally, we bolstered our financial flexibility through an exchange offer and consent solicitation for $216.4 million of our unsecured notes, reducing the amount maturing in March 2021 to about $198 million, with a voluntary early redemption of $125 million already announced. By March, we plan to have reduced our overall debt by nearly $600 million since early 2019. We repurchased 38.1 million shares since spring 2019, approximately 37% of total shares at that time, at an average price of $5.21. We have also expanded customer payment options, focusing on our private label credit card and introducing several buy now pay later and rent-to-own options. As we enter the fourth quarter, we are bolstered by several factors that position us well for a successful holiday season, including the new console cycle and our digital omnichannel growth. However, our focus extends beyond the console video game market, as we are broadening the range of products and services we offer to establish GameStop as a global leader in gaming and entertainment. As many of you have observed, we have begun to expand our inventory to include PC gaming, computers, monitors, game tables, and gaming TVs, among other categories, many of which will remain online exclusives. The PC hardware and accessories market presents a significant opportunity, as research indicates that a large number of console gamers also play PC games. Our main goal is to leverage the strengths and competitive advantages of our brand, a dedicated and loyal customer base, experienced sales associates, and extensive omnichannel capabilities to drive lifetime value across all areas of gaming and entertainment. As our customers adapt how they play, we are evolving alongside them, broadening our addressable market by expanding our range of products and services to meet their needs. In closing, as we reflect on the five quarters since launching GameStop Reboot, we are incredibly proud of our teams’ resilience in achieving meaningful results during the stabilization and optimization stages, all while providing our products and services to customers amid the unprecedented disruptions caused by the global pandemic. We have made progress toward restoring our business to sales growth and profitability while enabling us to undertake significant transformative work currently in progress. Looking ahead to next year and beyond, we are confident in our strategic plans and the ongoing transformation towards improved outcomes and sustainable growth at GameStop. Now, I will hand the call over to Jim to share more detail about our financials.

James Bell, CFO

Thank you, George. Good afternoon, everyone. I'd like to take this time to walk you through our third quarter fiscal 2020 results, and then I'll share some insight 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 continuing 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 omnichannel 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 beyond our 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 game and entertainment categories. Let me turn to a review of the third fiscal quarter. As George mentioned, our third quarter sales performance was as expected as we transitioned through the final quarter of the generation 8 console video game cycle, which included the shift of many software titles into the fourth quarter 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 sales for the third quarter was $1 billion or 30.2% below the third quarter of 2019. The decline was a combination of a negative 24.6% comparable store sales, the impact of both store closures 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 to 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, an expected slight deceleration from the second quarter, largely reflective of a lack of hardware product in the marketplace ahead of the launch of the new consoles, 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 and 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 realized the benefit of store traffic as stores began reopening during the quarter after being closed during the second quarter. From a 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 industry-wide 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 the 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 2/3 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 to 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 expected 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 have elected and the impact of the CARES Act, which allowed for a 5-year carryback 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 or loss per diluted share of $1.02 in the prior year third quarter. Adjusted net loss, excluding the gain on sale of assets related to the sale-leaseback transactions was $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 continued to focus on optimizing our global store fleet and strategically de-densifying 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 are 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 for the remaining 2 office buildings being offered, contributing $43.7 million toward total liquidity. Accounts payable at the quarter end were $440.2 million, down from $709.9 million at the end of the third quarter last year, reflecting a 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 continued to improve as we realized a trailing 12-month inventory turn of 4.7x from 4.1x this time last year. During the third quarter, we 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 and enhance our balance sheet, improve our debt 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 mandatory 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 at-the-market program to offer and sell up to $100 million of additional common stock. As I noted several times this year, we are extremely pleased with the results we have achieved to strengthen our balance sheet and advance our strategic objectives, and we 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 may 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 increased flexibility gives us the ability to leverage opportunities to accelerate our transformational strategies, such as increasing the speed at which we elevate and expand our omnichannel 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 2x that of any other competitor, which is leading to us having opportunities to get additional allocations of 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 store closures 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 omnichannel ecosystem. As a result, year-over-year e-commerce sales grew 352% in November versus the same month last year. Despite the strong start to 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 that the comparable store sales exclude the impact of permanent store closures and locations that have closed for 14 continuous 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 store markets and how we're approaching further actions. Looking at 2019 and 2020 combined, we will have closed 1,000 stores over that time frame, with over 300 in 2019 and nearly 700 in 2020, and importantly, have spent little to no capital to do so. With our investments improving our omnichannel 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 see an opportunity to further optimize the fleet in the coming year or 2. These efforts come with EBITDA improvement, and we have had a very flexible store base 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 the holiday, and our associates are energized by the buzz and excitement generated by the console launches. We have long said that the newness in consoles and software drive our business, and we see that playing out now. While we are now benefiting from a nice tailwind, we are 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 array of products and services in the 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 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 are poised to capitalize on significant profit flow-through improvement as we experience sales growth led by both the generation 9 console launch and expected new software title slate as well as the expansion of the transformation phase of our strategy and many exciting category and 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.

Operator, Operator

Our first question comes from Stephanie Wissink with Jefferies.

Ashley Helgans, Analyst

This is Ashley Helgans speaking on behalf of Steph Wissink. Regarding the reduction in SG&A, you've been averaging about $100 million per quarter. What should we anticipate for the pacing by quarter moving forward? What additional cost areas still need to be addressed? Also, in terms of your performance for the quarter, how does it compare to industry figures from third-party data sources like NPD?

George Sherman, CEO

Yes, Ashley, thank you for the questions. Regarding SG&A, we have been addressing it in almost every aspect of the business for several quarters now. Therefore, the expenses will not differ significantly from what we've historically seen, as we are focused on reducing costs throughout the entire system. A lot of this involves stores coming offline and improving productivity in our labor forces, including both stores and distribution centers, as well as in our corporate G&A. So, this is a widespread effort. I don’t anticipate significant changes based on our historical performance. And I'm sorry, what was the second part of your question?

Ashley Helgans, Analyst

Yes. 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, CEO

Yes. I'm not exactly sure how to address the benchmark point. However, I believe the quarter was consistent with our expectations. Looking back to a year ago when we began this journey, we indicated that these next four quarters would accurately reflect what we just experienced, and they did meet our expectations. More importantly, as we reach the end of this cycle and transition to the next, we are not competing on price. It's a balancing act, but importantly, the third quarter is now behind us. The key takeaway is that we are performing very well as we enter November and launch these consoles. This transition is crucial, and we are fully focused on moving ahead.

James Bell, CFO

Yes, that's correct. I would just add that we were aware we would face a decline in hardware sales as we approached the end of the cycle without sufficient inventory of previous generations. Additionally, some software titles were pushed from the third quarter to the fourth quarter, and we have felt the effects of the pandemic. Clearly, as cases rise across the country, we notice the impact as consumers become increasingly hesitant, especially when it comes to visiting specialty stores for unique purchases.

Ashley Helgans, Analyst

Okay. Great. And if I could just squeeze in 1 more. E-com representing 18% of the mix in the quarter. How much of the online business is now fulfilled from stores?

George Sherman, CEO

Yes, it's important to note that we haven't provided specific statistics on this, but it does fluctuate based on consumer demand. Whether it's shipping from the store, buying online and picking up in-store, or direct-to-consumer sales, as well as customer foot traffic to the store, all these aspects are dynamic. This is crucial because our goal as a frictionless, digitally-led omnichannel retailer is to empower consumers to choose when they want their products, and we ensure timely delivery to meet those preferences.

Operator, Operator

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

Colin Sebastian, Analyst

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 on how this differs from what was outlined in the letter to the Board? Because the 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, CEO

Yes. Look, I'll only comment on our progress as we see it, Reboot to date and where we are today. We look at the business, and we feel quite good about the financial stability measures that have taken place. Over the period of Reboot, we've reduced long-term debt by well over $500 million. We've returned $200 million to the shareholders through buybacks, which represent about 37% of the company. We ended the quarter with a $300 million more cash than the same quarter last year, and that's been a trend. I mean that's something that's been pretty continuous throughout the Reboot process. Just prior question, your SG&A run rate of reduction seems to be $100 million a quarter? Yes, it does. I mean, that's very much an important part of getting where we needed to be. And then the progress that we've made on working capital has been tremendous. And fortunately, that began at the very beginning of Reboot 15 months ago, and what that's done to allow us to navigate through this pandemic is I cannot overstate. So on the economic stability or financial stability front, 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 way very quickly. So it'll 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 made, lease-to-own options, flexible payment terms, proprietary credit cards, all better alternatives for the customer on how to shop. And then 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 serving the entire gaming community on all the various verticals. So we're glad to see sales up 16.5% despite being closed on Thanksgiving day and being very comfortable in that decision to close on Thanksgiving day. We have a lot of category expansion that both Jim and I mentioned during the course of our comments that are progressing well, and then really good progress on the digital-first omnichannel 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.

James Bell, CFO

Yes. I mean just to put a fine 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 advancement in technology as well as how it balances with the right footprint of stores. We launched that when we got here and 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, Analyst

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 specific referencing sales volumes next year or something else?

George Sherman, CEO

It's absolutely referencing sales volumes next year. And I'd say 2-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 carryforward demand into the entirety of next year and beyond.

Colin Sebastian, Analyst

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

George Sherman, CEO

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

Operator, Operator

Our next question comes from William Reuter with Bank of America.

William Reuter, Analyst

I just have two quick questions. The first is regarding November's performance. Was it in line with your expectations?

George Sherman, CEO

Yes. It 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, Analyst

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

James Bell, CFO

No, that's absolutely not the intent. The intent here is to simply optimize flexibility and optionality. 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 strengthened 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, as of this coming Friday, we'll have reduced our long-term debt over $530 million. By March of '21, they'll be over $600 million. In that same time frame, that same roughly 24-month time frame, 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 the way 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.

George Sherman, CEO

And so far the debt is concerned, we don't need it.

James Bell, CFO

Yes, absolutely.

George Sherman, CEO

We don't need it, bottom line.

James Bell, CFO

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

Operator, Operator

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

Joseph Feldman, Analyst

Regarding the consoles, how does your allocation this time compare to previous cycles? I assume you sold every unit you received. Is there still a significant backlog? What are your plans for allocation for the rest of the period? We know Sony has announced their intention to increase production. Can you provide any insights on that?

George Sherman, CEO

Yes. I think 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 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 and 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 attach differently, and that's been recognized, and we have seen some level of reward for that, and we expect it to be a differentiating point for us going forward in terms of allocation.

Joseph Feldman, Analyst

That's helpful. I have another question regarding the cash balance. I know some of it is restricted, but you currently have $603 million, and you are likely to generate even more in the fourth quarter. Assuming we navigate through this cycle with the pandemic, I understand the next few months may be challenging. How are you planning to allocate or use cash at this stage? We’ve heard from some that they hope you will buy back more stock in the coming years or return to that practice. I'm curious about how we should approach this going forward.

James Bell, CFO

Yes. Thanks, Joe. The short answer is, again, nothing is 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 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 then outside of that, certainly always the consideration to return capital to shareholders as well as we've proven, like I said, last year, in 2019, returned over $200 million to shareholders. So I think every one of those is on the table, we are always looking to find the optimum balance of capital allocation.

George Sherman, CEO

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. There's no particular end date in sight yet. This is something we're going to be dealing with for the indefinite future.

Operator, Operator

Our next question comes from Seth Sigman with Crédit Suisse.

Seth Sigman, Analyst

I wanted to follow-up on the Q4 commentary, and I just want to confirm the language here. So in the release, you talk 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, CEO

Yes. We are not providing guidance on anything. The comment was specifically about growth and profitability in the fourth quarter. To be clear, we are not providing guidance on anything. We have been quite straightforward about that.

Seth Sigman, Analyst

What would you call sales year-over-year as then? 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, CEO

Yes. It was just a notation for the fourth quarter.

Seth Sigman, Analyst

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

George Sherman, CEO

Yes. That's correct.

Operator, Operator

Our next question comes from William Reuter with Bank of America.

William Reuter, Analyst

I just have two quick questions. The first is regarding November performance. Was it in line with your expectations?

George Sherman, CEO

Yes. It 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, Analyst

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

James Bell, CFO

No, that's absolutely not the intent. The intent here is to simply optimize flexibility and optionality. 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 strengthened 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, as of this coming Friday, we'll have reduced our long-term debt over $530 million. By March of '21, they'll be over $600 million. In that same time frame, that same roughly 24-month time frame, 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 the way 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.

George Sherman, CEO

And so far the debt is concerned, we don't need it.

James Bell, CFO

Yes, absolutely.

George Sherman, CEO

We don't need it, bottom line.

James Bell, CFO

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

Operator, Operator

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

Joseph Feldman, Analyst

Regarding the consoles, how does your allocation compare to previous cycles? I assume you sold every unit you received. Is there still a significant backlog? What are your thoughts on allocation for the rest of the period? We know Sony has stated their intention to increase production. Can you provide any insights on that?

George Sherman, CEO

Yes. I think the demand has been unbelievable, Joe, as you mentioned, and we don't see any end to that in sight. So certainly, these are fabulous pieces of technology, and 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 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 and 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 and first-party software, we attach differently, and that's been recognized, and we have seen some level of reward for that, and we expect it to be a differentiating point for us going forward in terms of allocation.

Joseph Feldman, Analyst

That's helpful. I have another question regarding the cash balance. I know some of it is restricted, but you currently have $603 million. Presumably, you will generate even more in the fourth quarter. As we navigate this pandemic cycle, I understand the next couple of months may be challenging. How are you approaching cash allocation or usage at this point? We have heard from people hoping you will buy back more stock in the coming years or return to that strategy. I am curious about how you envision that moving forward.

James Bell, CFO

Yes. Thanks, Joe. The short answer is, again, nothing is 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 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 then outside of that, certainly always the consideration to return capital to shareholders as well as we've proven, like I said, last year, in 2019, returned over $200 million to shareholders. So I think every one of those is on the table; we are always looking to find the optimum balance of capital allocation.

George Sherman, CEO

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. There's no particular end date in sight yet. This is something we're going to be dealing with for the indefinite future.

Operator, Operator

Our next question comes from Seth Sigman with Crédit Suisse.

Seth Sigman, Analyst

I wanted to follow-up on the Q4 commentary, and I just want to confirm the language here. So in the release, you talk 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, CEO

Yes. We are not providing any guidance. The comment was specifically about growth and profitability in the fourth quarter. To clarify, we are not providing any guidance. We have been quite clear about that.

Seth Sigman, Analyst

What would you call sales year-over-year as then? 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, CEO

Yes. It was just a notation for the fourth quarter.

Seth Sigman, Analyst

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

George Sherman, CEO

Yes. That's correct.

Operator, Operator

Our next question comes from William Reuter with Bank of America.

William Reuter, Analyst

I have two quick questions. First, regarding the performance in November, was it what you expected?

George Sherman, CEO

Yes. It 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, Analyst

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

James Bell, CFO

No, that's absolutely not the intent. The intent here is to simply optimize flexibility and optionality. 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 strengthened 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, as of this coming Friday, we'll have reduced our long-term debt over $530 million. By March of '21, they'll be over $600 million. In that same time frame, that same roughly 24-month time frame, 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 the way 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.

George Sherman, CEO

And so far the debt is concerned, we don't need it.

James Bell, CFO

Yes, absolutely.

George Sherman, CEO

We don't need it, bottom line.

James Bell, CFO

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

Operator, Operator

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

Joseph Feldman, Analyst

Regarding the consoles, how did your allocation compare to previous cycles? I assume you sold every unit you received. Is there still a significant backlog? What are your thoughts on allocation for the remainder of the period? We know Sony plans to increase production, so could you share your insights on that?

George Sherman, CEO

Yes. I think the demand has been unbelievable, Joe, as you mentioned, and we don't see any end to 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 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 and 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 attach differently, and that's been recognized, and we have seen some level of reward for that, and we expect it to be a differentiating point for us going forward in terms of allocation.

Operator, Operator

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, CEO

Let me have Jim make 1 quick comment, and then we'll close off the call.

James Bell, CFO

I wanted to draw your attention this quarter to the slides we've added to the investor relations website as we undergo this transformation. These slides illustrate our journey, so please take a look at them. George?

George Sherman, CEO

Yes. Thanks to everyone, wishing you a safe and happy holiday. It's obviously been quite an unusual year. I hope you have a great end to 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 outlook at the ICR conference happening virtually in January and again, following our fourth quarter and year-end results. Thank you all very much.

Operator, Operator

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.