GME
#Let me start us off here, <UNK>.
I would say that remember that we are a player in digital downloads.
You don't do $228 million of digital receipts without having technologies, APIs, relationships and all those things that you need to sell digital downloads.
<UNK>, maybe you want to talk about some of the intelligence you have in DFC on this subject.
And you know the difficulty, of course, here is that digital is a complex animal and people ---+ every publisher measures it in slightly different ways, etc.
So <UNK>, you have something you want to add on this.
2016.
Oh, the 2016 titles, right.
Yes, I think it's important to remember that the results of the third quarter, while $0.05 below consensus, really for us amounts to about $5 million.
With 60% or so of our earnings to be made in the fourth quarter, we believe it's not that difficult to make up that $5 million.
And so that's, I think, the principle reason behind the guidance range we gave.
That's a good question and you can imagine, <UNK>, for us, a company that's in the transformation of the kind we are in, it's a trade-off every day, how do we disinvest in the core as the core becomes a smaller part of our business and how do we invest in these new businesses and we've had our struggles on some of these.
And <UNK>, I don't know if you want to take that, but that's a key question for us and we are attacking it very aggressively.
<UNK>.
Yes, I think if you were to ---+ let me put it to you this way.
The growth in SG&A year-over-year is almost solely attributed to Tech Brands.
Obviously, you had some currency impact that work for us, but, ex that, Tech Brands is the bulk of that addition and as we indicated, there are costs that we invested into the openings that impacted the overall Tech Brands numbers.
So I would say that the bulk of those costs are behind us.
We would not expect to go into next year with the type of store opening cadence that we talked about, <UNK> mentioned 190 plus stores that were opened this year.
And so we would not expect to see the same level of investment necessary next year.
And of course, with the store base that we now have as we move forward, whatever investments we do make come on a much larger base.
And <UNK>'s ---+ just so you know, <UNK>, one of <UNK>'s primary missions for this budget season is to tighten up our core SG&A separate from all the new stuff, how do we tighten up the core videogames business that we know very well, have been at a long time, understand all the different metrics.
We've just got to tighten that up a little harder than we have in the past given the fact that it's less a part of our business than it has been.
And I think we can do that.
Yes, we watch the Tech Brands performance in several categories, including from the core stores that we acquired, stores that were added as whitespace or conversion stores, by type of store, meaning the RadioShack versus other whitespace versus GameStop conversions.
We analyze those by year of opening.
We analyze each of the acquisitions individually against the pro formas that were created behind them and other than the store opening cadence being slower than we had anticipated and the conversion cadence, we are very pleased with the base stores.
We are very pleased with the whitespace stores that were opened in late 2013 and in 2014.
We are pleased with the performance of the stores we've opened in 2015; it's just that they are growing slower than we expected and we remain very pleased with the performance of the acquisitions that we've made as well.
Again, when we acquire a reseller, we can typically increase the productivity by 30% plus and that continues as we move forward.
<UNK>, you may want to share with <UNK> some of the exciting stuff that AT&T is doing because that's a big part of our growth here is our DIRECTV plan and (multiple speakers).
Well, I think we can see it by the videogames business with demand through the holiday season.
We definitely see it in the Loot category.
As you know, with the launch of the Star Wars game and movie, Star Wars collectible products are pretty hot right now, as well as performance within our Tech Brands segment.
I think this is something we look at almost every day, <UNK>.
So do you want to take that on.
We expect Star Wars to be one of the strongest titles for the holiday season, so sort of move beyond launch and think about Star Wars as a brand with the movie coming out.
So we expect it to get back towards our ---+ or on track for our expectations.
So we think as we talked about the guidance internally as a team prior to issuing the release, we think the guidance is appropriate.
I think in terms of new software sales, we are surprised a little bit by it too.
As you know, we expect growth in that category.
Holiday behaves very differently and we've got to understand ---+ we've been at this a long time.
We know that there are certain things ---+ <UNK>, anything you want to ---+.
The other thing too is that the installed base on hardware is so much greater than it has been.
You've got to believe there's going to be people chasing software for that installed base.
They can't all be streaming Netflix.
There's got to be some people playing video games on all those consoles.
So that gives us a little bit of optimism.
I will point out too that our Black Friday ad leaked before the launch of Star Wars and given the pricing that we've got in the Black Friday ad, we are really not clear as to what impact that may have had on our results during the launch.
That's a product of the diversification of the business because remember GameStop historically was a lower margin business and we've increased ---+ I think I said in my remarks, we've increased it 400 basis points in three or four years.
We think that's very sustainable because it's the contribution of these new categories, which are richer categories.
The real question you should be asking is can we reel in the SG&A costs in a way that we can bring more of that margin dollar to the bottom line.
Fair to say, <UNK>.
Yes, I think that is fair to say.
It's also ---+ I think it's probably fair to say that, within the Tech Brands, we are seeing continued margin expansion and that's as a result of the overlap of the Next program.
And as it's continued to increase as a percentage of the activity within the store, it is beneficial to margins.
It's important to do ---+ the reason we are in these categories, if you go back to our strategic work, the reason we are in these categories is because they are higher margin than video gaming.
It would be hard to find categories, by the way, that are lower margin than video gaming by the time you add in the hardware.
So Tech Brands, Apple and AT&T, as well as Loot are additive to our gross margin, so that's going to create more profitability.
Our issue is we've got to control costs on these transitions.
That's really the biggest part of it and the Company is in transformation.
We've studied a lot of cases, companies in transformation go through short-term cost pressures like this.
Well, I probably should've clarified that if you look at the store counts quarter over quarter over quarter, where the growth is coming from is in the AT&T store base.
Cricket and Simply Mac are relatively steady state for us.
And so the AT&T stores drive the highest margin.
As those grow as a percentage of the Tech Brand category, that is also having a dramatic impact.
Yes, <UNK>, what do you think.
And many of these titles are not available on the older generation.
Hard to say at this point, <UNK>.
We are doing a lot of modeling.
I don't think we are prepared for saying anything about 2016 yet, guys.
Yes, I think the holiday season is important as a data set to incorporate into our modeling and we will be prepared to talk about that, I think, as spring rolls around.
By the way, <UNK>, I will say this.
I will say telecommunications, Loot and digital will grow very aggressively in 2016.
I would say that is not going to change.
You will continue to see that.
Our business that we are trying to manage is the core videogame business, trying to understand it, because it is, as you know, fairly volatile.
Okay.
Well, thank you for your support of GameStop.
We appreciate you dialing in today and we look forward to speaking with you soon.
Thanks.
