Edgar Filing: GameStop Corp.

Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 28, 2017

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission File No. 1-32637

GameStop Corp.

(Exact name of registrant as specified in its Charter)



Delaware		20-2733559
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

625 Westport Parkway		76051
Grapevine, Texas		(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (817) 424-2000

Securities registered pursuant to Section 12(b) of the Act:



(Title of Class)		(Name of Exchange on Which Registered)
Class A Common Stock, $.001 par value per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large Accelerated Filer þ	Accelerated Filer ¨	Non-accelerated Filer ¨	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant as of July 30, 2016 was approximately $3.16 billion, based upon the closing market price of $30.95 per share of Class A Common Stock on the New York Stock Exchange. (For purposes of this calculation all of the registrant's directors and officers are deemed affiliates of the registrant.)

Number of shares of $.001 par value Class A Common Stock outstanding as of March 16, 2017: 101,210,856

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement of the registrant to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, for the 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

Table of Contents

TABLE OF CONTENTS



		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9B.	Other Information	44

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	44
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	44
Item 13.	Certain Relationships and Related Transactions, and Director Independence	44
Item 14.	Principal Accountant Fees and Services	44

PART IV
Item 15.	Exhibits and Financial Statement Schedule	45
Item 16.	Form 10-K Summary	45
SIGNATURES		46
FINANCIAL STATEMENTS		F-1
EXHIBITS

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Disclosure Regarding Forward-looking Statements

This Annual Report on Form 10-K (“Form 10-K”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, forward-looking statements can be identified by the use of terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “pro forma,” “seeks,” “should,” “will” or similar expressions. These statements are only predictions based on current expectations and assumptions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. All forward-looking statements included in this Form 10-K are based upon information available to us as of the filing date of this Form 10-K, and we undertake no obligation to update or revise any of these forward-looking statements for any reason, whether as a result of new information, future events or otherwise after the date of this Form 10-K, except as required by law. You should not place undue reliance on these forward-looking statements. The forward-looking statements involve a number of risks and uncertainties. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. A number of factors could cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A of this Form 10-K under the heading “Risk Factors,” which are incorporated herein by reference. You should carefully consider the risks and uncertainties described in this Form 10-K.

PART I



ITEM 1.	BUSINESS

General

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands that makes the most popular technologies affordable and simple. Within our family of brands, we are the world’s largest omnichannel video game retailer, the largest AT&T® (“AT&T”) authorized retailer, the largest Apple© (“Apple”) certified products reseller, a Cricket Wireless_TM reseller (“Cricket,” an AT&T brand) and the owner of www.thinkgeek.com, one of the world’s largest sellers of collectible pop-culture themed products. As of January 28, 2017, GameStop's retail network and family of brands include 7,535 company-operated stores in the United States, Australia, Canada and Europe.

We are a Delaware corporation which, through a predecessor, began operations as a specialty retailer of video games in November 1996. Our corporate office is located in Grapevine, Texas.

Our fiscal year is composed of the 52 or 53 weeks ending on the Saturday closest to the last day of January. Fiscal year 2016 consisted of the 52 weeks ended on January 28, 2017 ("fiscal 2016"). Fiscal year 2015 consisted of the 52 weeks ended on January 30, 2016 ("fiscal 2015"). Fiscal year 2014 consisted of the 52 weeks ended on January 31, 2015 ("fiscal 2014").

Our Reportable Segments

We operate our business in four geographic Video Game Brands segments: United States, Canada, Australia and Europe; and a Technology Brands segment. Financial information about our segments is included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 16, "Segment Information," of the notes to the consolidated financial statements, included in Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

Video Game Brands

The Video Game Brands segments include 6,013 stores, 3,944 of which are included in the United States segment. There are 322, 464, and 1,283 stores in the Canadian, Australian and European segments, respectively. The stores in our four Video Game Brands segments operate primarily under the names GameStop_TM (“GameStop”), EB Games_TM (“EB Games”), and Micromania. Each of the Video Game Brands segments consists primarily of retail operations, with all stores engaged in the sale of new and pre-owned video game systems, software and accessories, which we refer to as video game products. Our Video Game Brands stores sell various types of digital products, including downloadable content, network points cards, prepaid digital, prepaid subscription cards and digitally downloadable software and also sell certain mobile and consumer electronics products and collectible products. Through our omnichannel sales process, our customers can buy video game products and other merchandise online, reserve merchandise online and then pick it up in stores, or order products that may not be in-stock in stores and have it shipped to their homes. We operate e-commerce sites in eight countries, under the brand names of GameStop, EB Games, Micromania and ThinkGeek, that allow our customers to buy video game products, collectibles and other merchandise online. The network also includes: www.kongregate.com, a leading browser-based game site; Game Informer_TM (“Game Informer”) magazine, the world's leading print and digital video game publication; and iOS and Android mobile applications. Within our Video Game Brands segments, we operate 86 pop culture themed stores selling collectibles, apparel, gadgets, electronics, toys and other retail products for technology enthusiasts and general consumers, with 62 collectibles stores in international markets operating under the Zing Pop Culture brand and 24 stores in the United States operating under the ThinkGeek brand.

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Technology Brands

Our Technology Brands segment includes our Spring Mobile and Simply Mac businesses. Spring Mobile operates 1,403 AT&T branded wireless retail stores and 69 Cricket branded pre-paid wireless stores. The AT&T branded stores sell both pre and post-paid AT&T services, DIRECTV service and wireless products, as well as related accessories and other consumer electronics products. Pre-paid AT&T services, wireless devices and related accessories are sold through the Cricket branded stores. Simply Mac operates 50 Simply Mac© branded stores which sell Apple products, including desktop computers, laptops, tablets and smart phones and related accessories and other consumer electronics products. As an authorized Apple reseller, Simply Mac also offers certified training, warranty and repair services to its customers.

Our Strategy

During the past few years, we have transformed from the world’s largest specialty retailer of physical video game products into a family of retail brands selling many of the world’s most popular technologies and pop-culture products. Our vision is to continue to expand our business as a global family of specialty retail brands. Our mission is to continue to be the world’s largest omnichannel retailer of new and pre-owned and value video game products, to continue to grow sales of digital products, to expand the sales of collectible products through our video game stores and www.thinkgeek.com, to increase the number of our pop culture-themed stores and to strategically grow our Technology Brands segment to further diversify our revenue streams. Our goal is to have 50% or more of our operating earnings for the 52 weeks ending February 1, 2020 (“fiscal 2019”) come from sources other than "physical gaming," which we define as our traditional revenue streams including new video game hardware, new video game software, pre-owned and value video game products, video game accessories, PC entertainment software, interactive game figures, strategy guides and revenue from PowerUp Pro loyalty members receiving Game Informer magazine in print form.

We have a broad-based executive management team with substantial experience in the retail sector in merchandising, marketing, supply chain management, store operations and real estate. Following on the success of extending our core competencies into our mobile business, our strategy is to leverage our management team and core competencies to identify other retail concepts that we can acquire and rapidly expand. We believe our core competencies include the following:


•	Real estate knowledge, including extensive relationships with landlords, portfolio management, negotiating skills and risk mitigation;


•	Human resource management, including hiring, training, systems and processes, particularly in multi-unit management of small, limited staffing, specialty retail stores with expert staff in assisted-selling;


•	Knowledge of buy-sell-trade programs, including pricing algorithms, inventory balancing, refurbishment capabilities and secondhand dealer laws;


•	Customer retention programs, including using our loyalty programs to drive consumer awareness of new retail concepts and promote new products; and


•	The ability to deploy capital in ways that diversify the underlying business, manage financial risk and increase shareholder value, including finding acquisitions that have a high return on invested capital and are accretive to earnings.

Our competencies in real estate and human resource management stem from our experience in rapid growth retail environments.

We have anchored our strategy and growth plans upon the following pillars:

•

Maximize brick and mortar stores. Our strategy regarding our retail stores includes growing our leading market share in video games, utilizing our stores to grow digital sales and applying our retail expertise to our Technology Brands businesses. Our growth strategy depends in part upon opening new stores and operating them profitably. We expect to open approximately 100 new stores in fiscal 2017, including approximately 35 collectibles stores and approximately 65 Technology Brands stores. Our strategy also includes closing stores which are not meeting our performance standards or stores at the end of their lease terms and transferring sales to other nearby GameStop locations. We plan to close approximately 130 Video Game Brands stores worldwide in fiscal 2017 and 55 Technology Brands stores.

In our video game stores, we provide a high level of customer service by hiring game enthusiasts and providing them with ongoing sales training, including training in the latest technical and functional elements of our products and services, making them the most knowledgeable associates in the video game retail market. We focus marketing efforts and store associates on driving the sale of new release video game products, both physical and digital. As the world’s largest retailer of video game products with a proven capability to capture market share immediately following new product launches, we believe we regularly receive larger allocations of popular new video game products than our competitors. To assist our customers in obtaining immediate access to new releases, we offer our customers the opportunity to pre-order products in our stores or through our websites prior to their release.

Our Technology Brands business centers around our long-term partnership with AT&T, under which we sell AT&T products and services in our Spring Mobile managed AT&T and Cricket branded stores and certain AT&T products and services in our Simply Mac stores. We also have an agreement with Apple under which we sell Apple products and services in our Simply Mac stores.

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We acquired Spring Mobile in November 2013. Spring Mobile has grown from approximately 90 AT&T branded stores at the end of 2012 to 1,403 stores as of January 28, 2017, through a program with two primary focuses. The first of these is to acquire AT&T retailers. The second is opening what we refer to as “whitespace” stores, or new stores in retail locations identified by either AT&T or Spring Mobile management and agreed to by both parties. AT&T supports the opening of new whitespace stores by its authorized retailers in an effort to increase the size of its retail distribution channel. Both of these represent opportunities for continued growth in the near term for Spring Mobile.

In connection with the continued expansion of our Technology Brands business, Spring Mobile completed acquisitions of several additional AT&T authorized retailers in fiscal 2016, adding over 500 stores.

In July 2015, we acquired ThinkGeek, an online and wholesale retailer and developer that sells pop culture themed collectibles, apparel, gadgets, electronics, toys and other retail products for technology enthusiasts and general consumers through the www.thinkgeek.com website and certain exclusive products to wholesale channel customers. The addition of ThinkGeek provides an expansion of our global omnichannel platform and enables us to broaden our product offering in the collectibles category, including standalone stores and deepen relationships with our existing customer base.

We continue to seek opportunities to extend core competencies to other products and retail categories in order to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console cycle.

•

Expand our pre-owned business. We believe we are the largest retailer of pre-owned video game products in the world and carry the broadest selection of pre-owned and value video game products for both current and previous generation platforms, giving us a unique advantage in the video game retail industry. The opportunity to trade-in and purchase pre-owned video game products offers our customers a unique value proposition generally unavailable at most mass merchants, toy stores and consumer electronics retailers. We obtain most of our pre-owned video game products from trade-ins made in our stores by our customers. Pre-owned and value video game products generate significantly higher gross margins than new video game products. Our strategy consists of continuing to expand our product assortment to drive sales and gross profit growth, increasing consumer awareness of the benefits of trading in and buying pre-owned video game products through increased marketing activities and the use of both broad and targeted marketing to our loyalty program members. The supply of trade-ins of video game products, and the demand for resale of these products, is affected by overall demand for video game products and the introduction of new software and hardware by our suppliers. We expect the March 2017 launch of the Nintendo Switch and the continued adoption of next-generation consoles and software to drive trade-ins of video game products, thereby expanding our supply of pre-owned video game products.

Our Simply Mac stores also offer customers the opportunity to trade-in and purchase pre-owned Apple products.

•

Own the customer. Sustaining and growing our existing customer base depends on our ability to increase GameStop brand awareness, to drive membership in our loyalty programs, to engage with customers online, through social media and our mobile apps, and to expand our market leadership position by offering a variety of new and pre-owned video game products and continuing to enhance our mobile and digital product and service offerings. We operate loyalty programs in each of the countries in which we operate our Video Game Brands stores. Our U.S. loyalty program, called PowerUp Rewards_TM ("PowerUp Rewards"), had over 36 million members as of January 28, 2017. Our loyalty programs in our video game stores in the remaining countries had approximately 16 million members as of January 28, 2017. Our loyalty programs generally offer our customers the ability to sign up for a free or paid membership which gives our customers access to exclusive video game related rewards. The programs' paid memberships may also include a subscription to Game Informer magazine, additional discounts on pre-owned merchandise in our stores and additional credit on trade-ins of pre-owned products. Approximately 6 million of the 36 million U.S. loyalty members were paying members. Our e-commerce sites allow our customers to buy games online, reserve or pick up merchandise in our stores, order in-store for home delivery and to learn about the latest video game products and their availability in our stores. Together, our loyalty programs, websites, mobile applications, magazine and other properties are a part of our omnichannel retail strategy designed to enhance our relationships with our customers, making it easier for our customers to transact with us and increase loyalty.

Our store personnel provide value-added services to each customer, such as maintaining lists of regular customers and reserving new releases for customers with a down payment to ensure product availability. In addition, our store personnel readily provide product reviews and ratings to ensure customers are making informed purchasing decisions and inform customers of available resources, including Game Informer and our e-commerce sites, to increase a customer’s enjoyment of the product upon purchase.

•

Expand our digital growth strategy. Growth in the video game industry in recent years has been fueled by the proliferation of online game play, the sale of video games delivered in digital form and the expansion of other forms of digital gaming. The recent generations of video game consoles contain the technology to digitally download video game software content and a growing percentage of new games are being sold digitally (which the video game industry refers to as "full-game downloads"). Additionally, a growing market exists for the sale of digitally downloadable add-on content for physical games, which the video game industry refers to as “DLC.” The digital game market also consists of both immersive and casual games delivered over the internet to computers, tablets, smart phones and other devices. We sell a variety of digitally downloadable content in our video game stores and on our websites, including DLC, full-game downloads, network points cards, prepaid digital and prepaid subscription cards. We believe we are the only significant brick-and-mortar retail seller of DLC and that we are frequently the leading seller of DLC for most major game titles.

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•

Maintain a disciplined capital allocation. Our objective in recent years has been to return a significant portion of our free cash flow to our shareholders through share repurchases and dividends unless more strategic opportunities arise that we believe would create more meaningful shareholder returns. In fiscal 2016, we paid dividends of $1.48 per share of Class A Common Stock, totaling $155.5 million for the year. Additionally, on February 28, 2017, our Board of Directors authorized an increase in our annual cash dividend to $1.52 per share of Class A Common Stock, with the first quarterly dividend of fiscal 2017 of $0.38 per share of Class A Common Stock, payable on March 28, 2017 to stockholders of record on March 14, 2017. In fiscal 2016, we repurchased 3.0 million shares of our Class A Common Stock at an average price per share of $24.94 for a total of $75.1 million.

In order to create more meaningful shareholder returns, as we evaluate investments in strategic opportunities, we target internal rates of return (“IRR”) in excess of 20% for whitespace store expansion and acquisitions. The total consideration of the completed acquisitions of additional AT&T authorized retailers in fiscal 2016 was $483.5 million net of cash acquired, which includes $43.2 million estimated contingent consideration.

Market Size

Video Game Products. Based upon estimates compiled by various market research firms, including NPD Group, Inc. ("NPD") and International Development Group ("IDG"), we estimate that the market for new physical video game products was approximately $17 billion in 2016 in the countries in which we operate. This estimated market excludes sales of pre-owned video game products, which are not currently measured by any third-party research firms. Additionally, based on estimates compiled by various market research firms, we estimate that the market in North America for content in digital format (full-game and add-on content downloads for console and PC, subscriptions, mobile games and social network games) was between $13 billion and $22 billion in 2016.

Mobile and Consumer Electronics. The mobile and consumer electronics market, as we refer to it, consists primarily of wireless services, new and pre-owned mobile devices, such as smart phones and tablets, consumer electronics such as Apple products and services, non-gaming headsets and accessories. The market for wireless devices and services is estimated by CTIA — The Wireless Association^® to exceed $190 billion. We expect that the market for AT&T services and products and the wireless market in general will continue to grow as more and more devices connect to the internet through wireless networks and as AT&T continues to broaden its offerings of content and services, such as DIRECTV.

Merchandise

We categorize our sale of products and services as follows:

•

New Video Game Hardware. We offer the video game platforms of all major manufacturers, including the Sony PlayStation 4, Microsoft Xbox One and the Nintendo Switch, Wii U, and DS line. We also offer extended service agreements on video game hardware and software. Video game hardware sales are generally driven by the introduction of new platform technology and the reduction in price points as platforms mature. We are in a console cycle which began with the Nintendo Wii U launch in November 2012 and the launches of the PlayStation 4 and Xbox One in November 2013. In March 2017, Nintendo introduced the Switch. We believe that selling video game hardware increases store traffic and promotes customer loyalty, leading to increased sales of video game software and accessories, which have higher gross margins than video game hardware.

•

New Video Game Software. We purchase new video game software for current and certain prior generation consoles from the leading manufacturers, including Sony, Nintendo and Microsoft, as well as all other major third-party game publishers, such as Electronic Arts and Activision. We are one of the largest customers of video game titles sold by these publishers. We generally carry approximately 570 SKUs of new video game software at any given time across a variety of genres, including sports, action, strategy, adventure/role playing and simulation.

•

Pre-owned and Value Video Game Products. We provide our customers with an opportunity to trade in their pre-owned video game products in our stores in exchange for store credits which can be applied towards the purchase of other products, primarily new merchandise. We believe this process drives our higher market share, particularly at launch. We resell these pre-owned video game products and have the largest selection (approximately 3,000 SKUs) of pre-owned video game titles which have an average price of $24 as compared to an average price of $46 for new video game titles and which generate significantly higher gross margins than new video game products. Our highly-customized inventory management system allows us to actively manage the pricing and product availability of our pre-owned video game products across our store base and to reallocate our inventory as necessary. Our trade-in program also allows us to be one of the only suppliers of previous generation platforms and related video games. We also operate refurbishment centers in the U.S., Canada, Australia and Europe, where defective video game products can be tested, repaired, relabeled, repackaged and redistributed back to our stores.


•	Video Game Accessories. Video game accessories consist primarily of controllers, gaming headsets, virtual reality products, memory cards and other add-ons for use with video game hardware and software.


•	Digital. The proliferation of online game play through Microsoft Xbox Live, the PlayStation Network and PC gaming websites has led to consumer demand for subscription, time and points cards (“digital currency”) as well as full-game downloads and DLC, for existing console video games. We sell a wide variety of digital currency and we have developed technology to sell

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DLC and full-game downloads in our stores and on our U.S. website. We believe we are the worldwide leading retailer of digital currency and DLC for Xbox Live and the PlayStation Network.


•	Technology Brands. Technology Brands consist primarily of wireless products, services and accessories and consumer electronics offered in our Technology Brands segment through Spring Mobile managed AT&T and Cricket branded stores and Simply Mac stores. This product category also includes Apple and other consumer electronics products.


•	Collectibles. Collectibles consist of licensed merchandise, primarily related to the video game, television and movie industries and pop culture themes which are sold through our video game stores, ThinkGeek stores, Zing Pop Culture stores and www.thinkgeek.com.

•

Other Products. Other products primarily consist of PC entertainment software, gaming-related print media, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form. We offer PC entertainment software from many of the largest PC publishers, including Electronic Arts, Take Two and Activision across a variety of genres, including sports, action, strategy, adventure/role playing and simulation. We also carry strategy guides, magazines and interactive game figures, such as Amiibos from Nintendo and Skylanders from Activision.

The products in our Video Games Brands segments are substantially the same regardless of geographic location, with the primary differences in merchandise being the timing of release of new products in the various geographies and language translations. Our in-store video game product inventory generally consists of a constantly changing selection averaging over 5,700 SKUs. We have buying groups in each of our segments that negotiate terms, discounts and cooperative advertising allowances for the stores in their respective geographic areas. We use customer requests and feedback, pre-orders, industry magazines and product reviews to determine which new releases are expected to be hits. Pre-orders are tracked at individual stores to distribute titles and capture demand effectively. This merchandise management is essential because a significant portion of a game’s sales are usually generated in the first days and weeks following its release.

Store Operations

We design our video game stores to provide an electronic gaming atmosphere with an engaging and visually captivating layout, with an average size of 1,500 square feet. Our video game stores are typically equipped with several video game sampling areas, which provide our customers the opportunity to play games before purchase, as well as equipment to play video game clips. We use store configuration, in-store signage and product demonstrations to produce marketing opportunities both for our vendors and for us.

Our Technology Brands stores vary in size, with an average size of approximately 1,900 square feet. Our Spring Mobile managed AT&T and Cricket branded stores carry wireless products and accessories, and our Simply Mac stores carry Apple and other consumer electronics.

Our stores are generally located in high-traffic “power strip centers,” local neighborhood strip centers, high-traffic shopping malls and pedestrian areas, primarily in major metropolitan areas. These locations provide easy access and high frequency of visits and, in the case of strip centers and high-traffic pedestrian stores, high visibility. We target strip centers that are conveniently located, have a mass merchant or supermarket anchor tenant and have a high volume of customers.

Site Selection and Locations

Site Selection. Site selections for new stores are made after an extensive review of demographic data, including data from our PowerUp Rewards loyalty program, and other information relating to market potential, competitor access and visibility, compatible nearby tenants, accessible parking, location visibility, lease terms and the location of our other stores. Spring Mobile managed AT&T and Cricket branded stores are selected after approval from AT&T. Simply Mac stores are selected with input from Apple. In each of our geographic segments, we have a dedicated staff of real estate personnel experienced in selecting store locations.

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Domestic Locations. The table below sets forth the number and locations of our domestic stores included in the U.S. Video Game Brands and Technology Brands segments as of January 28, 2017:



	U.S. Video Game Brands	Technology Brands		U.S. Video Game Brands	Technology Brands		U.S. Video Game Brands	Technology Brands
Alabama	61	6	Kentucky	71	24	Ohio	170	3
Alaska	7	6	Louisiana	66	6	Oklahoma	48	28
Arizona	76	31	Maine	11	1	Oregon	34	38
Arkansas	31	27	Maryland	91	10	Pennsylvania	189	37
California	397	224	Massachusetts	83	34	Rhode Island	13	1
Colorado	59	31	Michigan	104	3	South Carolina	70	31
Connecticut	48	30	Minnesota	47	37	South Dakota	11	—
Delaware	15	13	Mississippi	44	14	Tennessee	95	30
District of Columbia	—	2	Missouri	69	46	Texas	366	149
Florida	256	79	Montana	10	9	Utah	27	36
Georgia	129	64	Nebraska	21	4	Vermont	5	—
Guam	2	—	Nevada	39	13	Virginia	126	43
Hawaii	19	—	New Hampshire	25	7	Washington	75	60
Idaho	16	9	New Jersey	120	30	West Virginia	29	—
Illinois	154	89	New Mexico	25	7	Wisconsin	60	35
Indiana	89	42	New York	230	64	Wyoming	8	9
Iowa	31	11	North Carolina	132	32
Kansas	31	17	North Dakota	9	—

Total Domestic Stores							3,944	1,522

International Locations. The table below sets forth the number and locations of our international stores included in the Video Game Brands segments in Canada, Europe and Australia as of January 28, 2017:



	Number of Stores
Canada	322
Total Stores - Canada Video Game Brands	322

Australia	423
New Zealand	41
Total Stores - Australia Video Game Brands	464

Austria	29
Denmark	34
Finland	18
France	432
Germany	217
Ireland	51
Italy	386
Norway	35
Sweden	62
Switzerland	19
Total Stores - Europe Video Game Brands	1,283
Total International Stores	2,069
Total Stores	7,535

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Game Informer

We publish Game Informer, the world’s largest print and digital video game publication and website featuring reviews of new title releases, game tips and news regarding current developments in the video game industry. Print and digital versions of the monthly magazine are sold through subscriptions, digitally and through displays in our domestic and international stores. Game Informer magazine is the fourth largest consumer publication in the U.S. and for its December 2016 issue, the magazine had approximately 6.0 million paid subscribers, including approximately 2.3 million paid digital magazine subscribers. The digital version of the magazine is the largest subscription digital magazine in the United States. Game Informer is a part of the PowerUp Rewards Pro loyalty program and is a key feature of each paid PowerUp Rewards membership. Operating results from the English version of Game Informer are included in the United States segment as this represents where the majority of subscriptions and sales are generated. Other international version results from Game Informer operations are included in the segment in which the sales are generated.

Omnichannel

We operate e-commerce sites in eight countries, under the brand names of GameStop, EB Games, Micromania and ThinkGeek, that allow our customers to buy video game products, collectibles and other merchandise online. Customers can reserve merchandise online and then pick it up in stores, or order products that may not be in-stock in stores and have it shipped to their homes. The sites also offer customers information and content about available games, release dates for upcoming games, and access to store information, such as location and product availability. E-commerce results are included in the geographic segment where the sales originate. Additionally, with the GameStop mobile app, smart phone users can browse our extensive product selection and experience an enhanced PowerUp Rewards dashboard. We estimate that the GameStop mobile app has been installed over 8 million times.

Kongregate

We operate Kongregate, which is a leading web and mobile gaming platform that has attracted over 5.2 billion web gameplays and over 2.5 billion mobile gameplays since its launch. Kongregate is also a publisher of mobile games and has several titles available in both the Apple and Google app stores, which have received over 110 million mobile installs. Over 34,000 developers have uploaded more than 112,000 games to www.kongregate.com. The majority of Kongregate’s revenues come from its mobile apps and in-game transactions utilizing a proprietary virtual currency called Kreds. Kongregate’s mobile publishing division has several titles available in both the Apple and Google app stores.

Advertising

Given the high foot traffic drawn past our stores, we use in-store marketing efforts such as window displays and “coming soon” signs to attract customers, as well as to promote our products. Inside our stores, we feature selected products through the use of vendor displays, “coming soon” or preview videos, signs, catalogs, point-of-purchase materials and end-cap displays. These advertising efforts are designed to increase the initial sales of new titles upon their release.

On a global basis, we receive cooperative advertising and market development funds from most of our manufacturers, distributors, software publishers and accessory suppliers to promote their respective products. Generally, vendors agree to purchase advertising space in one of our advertising vehicles. Once we run the advertising, the vendor pays us an agreed amount.

Our loyalty programs are designed to incent our customers to shop more often at our stores and to allow us to market directly to our customers based on their individual tastes and preferences. Our loyalty programs provide members with the opportunity to earn unique video game related rewards not available through any other retailer. Vendors also participate in these programs to increase the sales of their individual products.

In the last several years, as part of our brand-building efforts and targeted growth strategies, we expanded our advertising and promotional activities in certain targeted markets at key times of the year. In addition, we expanded our use of television and radio advertising in certain markets to promote brand awareness, our pre-owned business and store openings. We expect our investment in advertising to increase in certain areas to support our targeted growth strategies.

Distribution and Information Management

Our operating strategy involves providing a broad merchandise selection to our customers as quickly and as cost-effectively as possible. We use our inventory management systems to maximize the efficiency of the flow of products to our stores, enhance store efficiency and optimize store in-stock and overall investment in inventory.

Distribution. We operate distribution facilities in various locations throughout the world, with each location strategically located to support the operations in a particular country or region. In order to enhance our first-to-market distribution network, we also utilize the services of several off-site, third-party operated distribution centers that pick up products from our suppliers, repackage the products for each of our stores and ship those products to our stores by package carriers. Inventory is shipped to each store at least twice a week, or daily, if necessary, in order to keep stores in supply of products. Our distribution facilities also typically support refurbishment of pre-owned products to be redistributed to our stores.

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We distribute products to our U.S. stores and on-line customers through a 353,000 square foot distribution center in Grapevine, Texas and a 631,000 square foot distribution center in Shepherdsville, Kentucky. The technology used in the distribution centers allows for high-volume receiving and distributions to stores.

We distribute merchandise to our Canadian segment from two distribution centers in Brampton, Ontario. We have a distribution center near Brisbane, Australia which supports our Australian operations and a small distribution facility in New Zealand which supports the stores in New Zealand. European segment operations are supported by four regionally-located distribution centers in Milan, Italy; Memmingen, Germany; Dublin, Ireland; and Paris, France.

Digital Distribution. We have developed proprietary technology to work in conjunction with developers, as well as Microsoft and Sony, to enable us to sell DLC and full-game downloads in our stores and on our e-commerce sites.

Management Information Systems. Our proprietary inventory management systems and point-of-sale technology show daily sales and in-store stock by title by store. Our systems use this data to automatically generate replenishment shipments to each store from our distribution centers, enabling each store to carry a merchandise assortment uniquely tailored to its own sales mix and rate of sale. Our call lists and reservation system also provide our buying staff with information to determine order size and inventory management for store-by-store inventory allocation.

To support most of our operations, we use a large-scale, Intel-based computing environment with a state-of-the-art storage area network and a wired and wireless corporate network installed at our U.S. and regional international headquarters, and a secure, virtual private network to access and provide services to computing assets located in our stores, distribution centers and satellite offices and to our mobile workforce. This strategy has proven to minimize initial outlay of capital while allowing for flexibility and growth as operations expand. Regional communication links exist to each of our distribution centers and offices in international locations with connectivity to our U.S. data center as required by our international, distributed applications.

Our proprietary point-of-sale system has been enhanced to facilitate trade-in transactions, including automatic look-up of trade-in prices and printing of machine-readable bar codes to facilitate in-store restocking of pre-owned video games. In addition, our central database of all pre-owned and value video game products allows us to actively manage the pricing and product availability of our pre-owned video game products across our store base and reallocate our pre-owned and value video game products as necessary.

Field Management and Staff

Each of our Video Game Brands stores employs, on average, one store leader, one assistant store leader and between two and ten sales associates, many of whom are part-time employees. Each store leader is responsible for managing their personnel and the economic performance of their store. We have cultivated a work environment that attracts employees who are actively interested in video games so that they are better able to assist customers. To encourage them to sell the full range of our products and to maximize our profitability, we provide our employees with targeted incentive programs to drive overall sales and sales of higher margin products.

Our stores communicate with our corporate offices daily via e-mail. This e-mail allows for better tracking of trends in upcoming titles, competitor strategies and in-stock inventory positions and the opportunity to communicate directly with our executives. We have invested in significant management training programs for our store leaders and our district leaders to enhance their business management skills. We also sponsor our annual store leaders’ conferences at which we conduct intense educational training programs to provide our video game store employees with information about the upcoming video game products that will be released by publishers during the holiday season. All video game software publishers and vendors are invited to attend the conferences.

Our Video Game Brands store operations are managed by market vice presidents or managing directors (in the case of international markets) who directly supervise regional leaders. The regions are further divided into districts, each with a district leader covering an average of 15 stores.

Our Technology Brands segment is managed by a senior vice president who manages a vice president for each of our three store concepts. We operate the AT&T branded, Cricket branded and Simply Mac branded stores with a field management and store management structure similar to that of our Video Game Brands stores.

Vendors

We purchase substantially all of our new products worldwide from approximately 90 manufacturers, software publishers and several distributors. Purchases from the top ten vendors in our Video Game Brands segments accounted for approximately 78% of our new product purchases in fiscal 2016. Sony, Microsoft, Nintendo, Electronic Arts and Activision accounted for 24%, 14%, 10%, 7% and 6%, respectively, of our new product purchases in our Video Game Brands segments during fiscal 2016. We have established price protections with our primary video game product vendors in order to reduce our risk of inventory obsolescence. In addition, we have few purchase contracts with video game trade vendors and generally conduct business on an order-by-order basis, a practice that is typical throughout the industry. We purchase substantially all of our products in our Technology Brands segment through our agreements with AT&T and Apple. We believe that maintaining and strengthening our long-term relationships with our vendors is essential to our operations and continued expansion. We believe that we have very good relationships with our vendors.

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Competition

The video game industry is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We compete with mass merchants and regional chains; computer product and consumer electronics stores; other video game and PC software specialty stores; toy retail chains; direct sales by software publishers; and online retailers and game rental companies. Video game products are also distributed through other methods such as digital delivery. We also compete with sellers of pre-owned and value video game products. Additionally, we compete with other forms of entertainment activities, including casual and mobile games, movies, television, theater, sporting events and family entertainment centers.

In the U.S., we compete with Wal-Mart Stores, Inc. (“Wal-Mart”); Target Corporation (“Target”); Amazon.com, Inc. (“Amazon.com”); and Best Buy Co., Inc. (“Best Buy”), among others. Throughout Europe we compete with major consumer electronics retailers such as Media Markt, Saturn and FNAC, major hypermarket chains like Carrefour and Auchan, and online retailer Amazon.com. Competitors in Canada include Wal-Mart and Best Buy. In Australia, competitors include K-Mart, Target and JB HiFi stores.

Our Spring Mobile AT&T branded stores compete with mass market retailers such as Wal-Mart, Best Buy and Target, among others, as well as other pre-paid and post-paid wireless carriers and their distribution channels, including Verizon, Sprint and T-Mobile. Our Simply Mac stores compete with mass-market retailers as noted above. Our Spring Mobile managed Cricket branded stores compete with the pre-paid and post-paid wireless service offerings of Verizon, T-Mobile, Sprint and other prepaid brands including Boost, GoPhone and MetroPCS.

Seasonality

Our business, like that of many retailers, is seasonal, with the major portion of our sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season. During fiscal 2016 and 2015, we generated approximately 35% and 38%, respectively, of our sales during the fourth quarter.

Trademarks

We have a number of trademarks and servicemarks, including “GameStop,” “Game Informer,” “EB Games,” “Electronics Boutique,” “ThinkGeek,” “Spring Mobile,” “Simply Mac,” “Kongregate,” “Power to the Players_TM” and “PowerUp Rewards,” which have been registered by us with the U.S. Patent and Trademark Office. For many of our trademarks and servicemarks, including “Micromania,” we also have registered or have registrations pending with the trademark authorities throughout the world. We maintain a policy of pursuing registration of our principal marks and opposing any infringement of our marks.

Employees

We have approximately 23,000 full-time salaried and hourly employees and between 30,000 and 45,000 part-time hourly employees worldwide, depending on the time of year. Fluctuation in the number of part-time hourly employees is due to the seasonality of our business. We believe that our relationship with our employees is excellent. Some of our international employees are covered by collective bargaining agreements, while none of our U.S. employees are represented by a labor union or are members of a collective bargaining unit.

Sustainability

We are committed to sustainability and to operating our business in a manner that results in a positive impact to the environment and our communities. Through our trade-in program, we take in software (CDs), gaming consoles and consumer electronics that are otherwise destined for landfills and either refurbish them or recycle them. In 2016 alone, through our U.S. refurbishment center, the company refurbished over 8 million pieces of software (CDs) and over 3.9 million consumer electronic devices, and recycled almost 3 million pounds of e-waste. In addition, we continuously measure, and look for cost-effective ways to reduce, our carbon emissions and have seen both our total emissions and emissions by store decrease over the past five years.

See the Social Responsibility section of our corporate website (www.gamestopcorp.com) for further information on our sustainability efforts. We are not incorporating by reference into this Annual Report on Form 10-K information or materials contained on our website or that can be accessed through our website.

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Available Information

We make available on our corporate website (www.gamestopcorp.com), under “Investor Relations — SEC Filings,” free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such material to the Securities and Exchange Commission (“SEC”). You may read and copy this information or obtain copies of this information by mail from the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Further information on the operation of the SEC’s Public Reference Room in Washington, D.C. can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like GameStop, who file electronically with the SEC. The address of that site is http://www.sec.gov. In addition to copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, our Code of Standards, Ethics and Conduct is available on our website under “Investor Relations — Corporate Governance” and is available to our stockholders in print, free of charge, upon written request to the Investor Relations Department at GameStop Corp., 625 Westport Parkway, Grapevine, Texas 76051. The contents of our corporate website are not part of this Annual Report on Form 10-K, or any other report we file, with, or furnish to, the SEC.



ITEM 1A.	RISK FACTORS

An investment in our company involves a high degree of risk. You should carefully consider the risks below, together with the other information contained in this report, before you make an investment decision with respect to our company. The risks described below are not the only ones facing us. Additional risks not presently known to us, or that we consider immaterial, may also impair our business operations. Any of the following risks could materially adversely affect our business, operating results or financial condition, and could cause a decline in the trading price of our common stock and the value of your investment.

Risks Related to Our Business

Economic conditions in the U.S. and in certain international markets could adversely affect demand for the products we sell.

Sales of our products involve discretionary spending by consumers. Consumers are typically more likely to make discretionary purchases, including purchasing video game products, when there are favorable economic conditions. Consumer spending may be affected by many economic factors outside of the Company's control. Some of these factors include consumer disposable income levels, consumer confidence in current and future economic conditions, levels of employment, consumer credit availability, consumer debt levels, inflation, political conditions and the effect of weather, natural disasters, and civil disturbances. These and other economic factors could adversely affect demand for our products, which may negatively impact our business, results of operations and financial condition.

The video game industry has historically been cyclical and is affected by the introduction of next-generation consoles, which could negatively impact the demand for existing products or our pre-owned business.

The video game industry has historically been cyclical in nature in response to the introduction and maturation of new technology. Following the introduction of new video game platforms, sales of these platforms and related software and accessories generally increase due to initial demand, while sales of older platforms and related products generally decrease as customers migrate toward the new platforms. In addition, the features of new consoles or changes to the existing generations of consoles, including any future restrictions or conditions or the ability to play prior generation video games on such consoles, may adversely affect our pre-owned business.

The current generation console cycle began when Sony and Microsoft launched the PlayStation 4 and Xbox One in November 2013. Nintendo introduced the Switch in March 2017. If the current video game platforms do not continue to be successful, our sales of video game products could decline. The introduction of next-generation consoles could negatively impact the demand for existing products or our pre-owned business, which could have a negative impact on results of operations and financial condition.

We depend upon the timely delivery of new and innovative products from our vendors.

We depend on major hardware manufacturers, primarily Microsoft, Sony and Nintendo, to deliver new and existing video game platforms and new innovations on a timely basis and in anticipated quantities. In addition, we depend on software publishers to introduce new and updated software titles. We have experienced sales declines in the past due to a reduction in the number of new software titles available for sale. Any material delay in the introduction or delivery, or limited allocations, of hardware platforms or software titles could result in reduced sales.

If we fail to keep pace with changing industry technology and consumer preferences, we will be at a competitive disadvantage.

The interactive entertainment industry is characterized by swiftly changing technology, evolving industry standards, frequent new and enhanced product introductions, rapidly changing consumer preferences and product obsolescence. Video games are now played on a wide variety of mediums, including mobile phones, tablets, social networking websites and other devices. The popularity of browser, mobile and social gaming has increased greatly and this popularity is expected to continue to grow. Browser, mobile

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and social gaming is accessed through hardware other than the consoles and traditional hand-held video game devices we currently sell. Our business and results of operations may be negatively impacted if we are unable to respond to this growth in popularity of browser, mobile and social gaming and transition our business to take advantage of these new forms of gaming. We have been and are currently pursuing various strategies to integrate these new forms of gaming into our business model, but we can provide no assurances that these strategies will be successful or profitable.

In order to continue to compete effectively in the video game industry, we need to respond quickly to technological changes and to understand their impact on our customers’ preferences. It may take significant time and resources to respond to these technological changes and changes in consumer preferences. Our business and results of operations may be negatively impacted if we fail to keep pace with these changes.

Technological advances in the delivery and types of video games and PC entertainment software, as well as changes in consumer behavior related to these new technologies, could lower our sales.

The current consoles from Sony, Nintendo, and Microsoft have facilitated download technology. Downloading of video game content to the current generation video game systems continues to grow and take an increasing percentage of new video game sales, despite possible constraints caused by bandwidth capacity and video game file sizes. If consumers' preference for downloading video game content continues to increase or these consoles and other advances in technology continue to expand our customers’ ability to access and download the current format of video games and incremental content for their games through these and other sources, our customers may no longer choose to purchase video games in our stores or reduce their purchases in favor of other forms of game delivery. As a result, our business and results of operations may be negatively impacted.

Our ability to obtain favorable terms from our suppliers may impact our financial results.

Our financial results depend significantly upon the business terms we can obtain from our suppliers, including competitive prices, unsold product return policies, advertising and market development allowances, freight charges and payment terms. We purchase substantially all of our products directly from manufacturers, software publishers and, in some cases, distributors. Our largest vendors in our Video Game Brands segments are Sony, Microsoft, Nintendo, Electronic Arts and Activision, which accounted for 24%, 14%, 10%, 7% and 6%, respectively, of our new product purchases in fiscal 2016. If our suppliers do not provide us with favorable business terms, we may not be able to offer products to our customers at competitive prices.

If our vendors fail to provide marketing and merchandising support at historical levels, our sales and earnings could be negatively impacted.

The manufacturers of video game hardware and software have typically provided retailers with significant marketing and merchandising support for their products. Additionally, AT&T and Apple provide our Technology Brands stores with similar support. As part of this support, we receive cooperative advertising and market development payments from these vendors which enable us to actively promote and merchandise the products we sell and drive sales at our stores and on our websites. We cannot assure you that vendors will continue to provide this support at historical levels. If they fail to do so, our business and results of operations may be negatively impacted.

The continued growth of our Technology Brands segment is dependent in large part on our relationship with AT&T and any material adverse change to this relationship would affect our results.

We continue to grow our Technology Brands segment as a way to diversify our business in order to continue to drive growth and to help mitigate the financial impact from the cyclical nature of the video game console business. Gross margins in our Technology Brands segment are higher than in our Video Game Brands segments and as a result, a growing portion of our profits is due to the growth of our Technology Brands segment. Our Technology Brands segment is primarily conducted through Spring Mobile, an AT&T authorized retailer currently operating 1,403 AT&T branded stores selling post-paid wireless services and products, and 69 Cricket branded stores selling pre-paid wireless services and products. Therefore, we depend in large part on our relationship with AT&T for the continued growth of our Technology Brands segment. In particular, we depend on AT&T for constant innovation and the timely delivery of products and services to our stores. Any material adverse change in our relationship with AT&T, including termination of the relationship (which is permissible upon a short notice period), the lack of innovation or failure to timely supply products or competitive service plans, or changes in the manner in which AT&T compensates its authorized retailers, could materially adversely impact the continued growth of our Technology Brands segment and our financial condition and results of operations.

Our growing relationship with AT&T could have an adverse impact on our business, including as a result of restrictions on our ability to offer products and services in the United States that compete with AT&T in wireless and wireline communications and a variety of technology businesses.

We are a significant reseller of AT&T products and services through our Technology Brands segment. We also sell certain AT&T products and services through our Video Game Brands stores. Our agreements with AT&T and its affiliates impose significant restrictions on our ability to offer products and services in the United States that compete with AT&T in wireless and wireline communications and a variety of technology businesses, including several that are adjacent to markets in which we participate or are considering entering, which could materially adversely impact this component of our business.

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We have made and may make investments and acquisitions which could negatively impact our business if we fail to successfully complete and integrate them, or if they fail to perform in accordance with our expectations.

To enhance our efforts to grow and compete, we have made and continue to make investments and acquisitions. These activities include investments in and acquisitions of digital, browser, social and mobile gaming and technology-based companies as the delivery methods for video games continue to evolve, and investments in new retail categories like wireless and consumer electronics. Our plans to pursue future transactions are subject to our ability to identify potential candidates and negotiate favorable terms for these transactions. Accordingly, we cannot assure you that future investments or acquisitions will be completed. In addition, to facilitate future transactions, we may take actions that could dilute the equity interests of our stockholders, increase our debt or cause us to assume contingent liabilities, all of which may have a detrimental effect on the price of our common stock. Also, companies that we have acquired, and that we may acquire in the future, could have products that are in development, and there is no assurance that these products will be successfully developed. Finally, if any acquisitions are not successfully integrated with our business, or fail to perform in accordance with our expectations, our ongoing operations could be adversely affected. Integration of digital, browser, social and mobile gaming and mobile phone and technology-based companies or other retailers may be particularly challenging to us as these companies are outside of our historical operating expertise.

Pressure from our competitors may force us to reduce our prices or increase spending, which could decrease our profitability.

The retail environment is intensely competitive and subject to rapid changes in consumer preferences and frequent new product introductions. We compete with mass merchants and regional chains, including Wal-Mart and Target; computer product and consumer electronics stores, including Best Buy; internet-based retailers such as Amazon.com; other U.S. and international video game and PC software specialty stores located in malls and other locations, such as Carrefour and Media Markt; toy retail chains; direct sales by software publishers; and online retailers and game rental companies. Some of our competitors have longer operating histories and may have greater financial resources than we do or other advantages. In addition, video game products and content are increasingly being digitally distributed and new competitors built to take advantage of these new capabilities are entering the marketplace, and other methods may emerge in the future. We also compete with other sellers of pre-owned video game products and other PC software distribution companies, including Steam. Certain of our mass-merchant competitors are expanding in the market for pre-owned video games through aggressive pricing which may negatively affect our margins, sales and earnings for these products. Additionally, we compete with other forms of entertainment activities, including browser, social and mobile games, movies, television, theater, sporting events and family entertainment centers. Our Technology Brands stores compete with a wide variety of other wireless carriers and retailers and consumer electronics retailers, including AT&T, which competes with our Spring Mobile managed AT&T and Cricket branded stores. If we lose customers to our competitors, or if we reduce our prices or increase our spending to maintain our customers, we may be less profitable.

We depend upon our key personnel and they would be difficult to replace.

Our success depends upon our ability to attract, motivate and retain a highly trained and engaged workforce, including key management for our stores and skilled merchandising, marketing, financial and administrative personnel. The turnover rate in the retail industry is relatively high, and there is an ongoing need to recruit and train new store employees. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers and our ability to offer appropriate compensation packages. Additionally, we depend upon the continued services of our key executive officers, including our Executive Chairman, Chief Executive Officer, Chief Operating Officer and Executive Vice Presidents. Our inability to recruit a sufficient number of qualified individuals or our failure to retain key employees in the future may have a negative impact on our business and results of operations.

Damage to our reputation could adversely affect our business and our relationships with our customers.

Our continued success depends upon customers' perception of our Company. Any negative publicity relating to our vendors, products, practices or our Company could damage our reputation. The increased use of social media platforms allows for the rapid disbursement of information, including negative feedback or other commentary, which could negatively impact our reputation and result in declines in customer loyalty and adversely affect our results of operations.

International events could delay or prevent the delivery of products to our suppliers.

Our suppliers rely on foreign sources, primarily in Asia, to manufacture a portion of the products we purchase from them. As a result, any event causing a disruption of imports, including natural disasters or the imposition of import restrictions or trade restrictions in the form of tariffs or quotas, could increase the cost and reduce the supply of products available to us, which may negatively impact our business and results of operations.

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Our international operations expose us to numerous risks.

We have international retail operations in Australia, Canada and Europe. Because release schedules for hardware and software introduction in these markets can sometimes differ from release schedules in the United States, the timing of increases and decreases in foreign sales may differ from the timing of increases and decreases in domestic sales. We are also subject to a number of other factors that may affect our current or future international operations. These include:


•	economic downturns, specifically in the regions in which we operate;


•	currency exchange rate fluctuations;


•	international incidents;


•	natural disasters;


•	government instability; and


•	competitors entering our current and potential markets.

Our operations in Europe are also subject to risks associated with the current economic conditions and uncertainties in the European Union (“EU”). In June 2016, voters in the United Kingdom approved the exit of that country from the EU (“Brexit”), and the British government has indicated that it intends to negotiate a withdrawal of the U.K. from the EU. The Brexit vote has created significant economic uncertainty in Europe. In addition, European and global economic conditions have been negatively impacted by the inability of certain EU member states to service their sovereign debt obligations. There continues to be uncertainty over the possibility that other EU member states may experience similar financial troubles, the ultimate outcome of the EU governments’ financial support programs, the possible breakup or restructuring of the EU and the possible elimination or restructuring of the EU monetary system. These continued uncertainties could further disrupt European and global economic conditions. Unfavorable economic conditions could negatively impact consumer demand for our products. These factors could negatively impact our business, results of operations and financial condition.

We are also subject to risks that our operations outside the United States could be conducted by our employees, contractors, representatives or agents in ways that violate the Foreign Corrupt Practices Act or other similar anti-bribery laws. While we have policies and procedures intended to ensure compliance with these laws, our employees, contractors, representatives and agents may take actions that violate our policies. Moreover, it may be more difficult to oversee the conduct of any such persons who are not our employees, potentially exposing us to greater risk from their actions. Any violations of those laws by any of those persons could have a negative impact on our business.

Changes to tariff and import/export regulations may negatively impact our future financial condition and results of operations.

The United States and other countries have occasionally proposed and enacted protectionist trade policies that could increase the cost or reduce the availability of certain merchandise. In particular, the current U.S. administration has made comments supporting potential changes to import/export tariffs and international trade agreements and there is political discussion regarding the implementation of a “border adjustment tax.” Any of these measures, if implemented, could have an adverse impact on our business because a significant portion of the products we offer are purchased from foreign vendors and manufactured in foreign countries.

Unfavorable changes in our global tax rate could have a negative impact on our business, results of operations and cash flows.

As a result of our operations in many foreign countries, our global tax rate is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. Depending upon the sources of our income, any agreements we may have with taxing authorities in various jurisdictions and the tax filing positions we take in various jurisdictions, our overall tax rate may be higher than other companies or higher than our tax rates have been in the past. We base our estimate of an annual effective tax rate at any given point in time on a calculated mix of the tax rates applicable to our business and to estimates of the amount of income to be derived in any given jurisdiction. A change in the mix of our business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate or adverse outcomes from the tax audits that regularly are in process in any jurisdiction in which we operate could result in an unfavorable change in our overall tax rate, which could have a material adverse impact on our business and results of our operations.

Restrictions on our ability to take trade-ins of and sell pre-owned video game products or pre-owned mobile devices could negatively affect our financial condition and results of operations.

Our financial results depend on our ability to take trade-ins of, and sell, pre-owned video game products and pre-owned mobile devices within our stores. Actions by manufacturers or publishers of video game products or mobile devices, wireless carriers or governmental authorities to prohibit or limit our ability to take trade-ins or sell pre-owned video game products or mobile devices, or to limit the ability of consumers to play pre-owned video games or use pre-owned mobile devices, could have a negative impact on our results of operations.

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Sales of video games containing graphic violence may decrease as a result of actual violent events or other reasons, and our financial results may be adversely affected as a result.

Many popular video games contain material with graphic violence. These games receive an “M” or “T” rating from the Entertainment Software Ratings Board. As actual violent events occur and are publicized, or for other reasons, public acceptance of graphic violence in video games may decline. Consumer advocacy groups may increase their efforts to oppose sales of graphically-violent video games and may seek legislation prohibiting their sales. As a result, our sales of those games may decrease, which could negatively impact our results of operations.

An adverse trend in sales during the holiday selling season could impact our financial results.

Our business, like that of many retailers, is seasonal, with the major portion of our sales and operating profit realized during the fourth fiscal quarter, which includes the holiday selling season. During fiscal 2016, we generated approximately 35% of our sales during the fourth quarter. Any adverse trend in sales during the holiday selling season could lower our results of operations for the fourth quarter and the entire fiscal year.

Our results of operations may fluctuate from quarter to quarter.

Our results of operations may fluctuate from quarter to quarter depending upon several factors, some of which are beyond our control. These factors include, but are not limited to:


•	the timing and allocations of new product releases including new console launches;


•	the timing of new store openings or closings;


•	shifts in the timing or content of certain promotions or service offerings;


•	the effect of changes in tax rates in the jurisdictions in which we operate;


•	acquisition costs and the integration of companies we acquire or invest in;


•	the mix of earnings in the countries in which we operate;


•	the costs associated with the exit of unprofitable markets, businesses or stores; and


•	changes in foreign currency exchange rates.

These and other factors could affect our business, financial condition and results of operations, and this makes the prediction of our financial results on a quarterly basis difficult. Also, it is possible that our quarterly financial results may be below the expectations of public market analysts.

Failure to effectively manage our new store openings could lower our sales and profitability.

Our growth strategy depends in part upon opening new stores and operating them profitably. We opened 73 Video Game Brands stores (including 52 collectibles stores) and opened or acquired 583 Technology Brands stores in fiscal 2016. We expect to open approximately 100 new stores in fiscal 2017, including approximately 35 collectibles stores and approximately 65 Technology Brands stores. Our ability to open new stores and operate them profitably depends upon a number of factors, some of which may be beyond our control. These factors include:


•	the ability to identify new store locations, negotiate suitable leases and build out the stores in a timely and cost efficient manner;


•	the ability to hire and train skilled associates;


•	the ability to integrate new stores into our existing operations; and


•	the ability to increase sales at new store locations.

If we fail to manage new store openings in a timely and cost efficient manner, our growth or profits may decrease.

Failure to successfully execute our strategy to close stores and transfer customers and sales to nearby stores could adversely impact our financial results.

Our strategy includes closing stores which are not meeting our performance standards or stores at the end of their lease terms and transferring sales to other nearby GameStop locations. We closed 141 Video Game Brands stores worldwide in fiscal 2016 and plan to close approximately 130 Video Game Brands stores worldwide in fiscal 2017. We believe that we can ultimately increase profitability by successfully transferring customers and sales to other stores by marketing directly to the PowerUp Rewards members who have shopped in the stores that we plan to close. If we are unsuccessful in marketing to customers of the stores that we plan to close or in transferring sales to nearby stores, our results of operations could be negatively impacted.

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If we are unable to renew or enter into new leases on favorable terms, our revenue may be adversely affected.

All of our retail stores are located in leased premises. If the cost of leasing existing stores increases, we cannot assure you that we will be able to maintain our existing store locations as leases expire. In addition, we may not be able to enter into new leases on favorable terms or at all, or we may not be able to locate suitable alternative sites or additional sites for new store expansion in a timely manner. Our revenues and earnings may decline if we fail to maintain existing store locations, enter into new leases, locate alternative sites or find additional sites for new store expansion.

We rely on centralized facilities for refurbishment of our pre-owned products. Any disruption to these facilities could adversely affect our profitability.

We rely on centralized facilities for the refurbishment of all pre-owned products that we sell. If any disruption occurred at these facilities, whether due to natural disaster or severe weather, or events such as fire, accidents, power outages, systems failures, or other unforeseen causes, sales of our pre-owned products could decrease. Since we generally obtain higher margins on our pre-owned products, any adverse effect on their sales could adversely affect our profitability.

If our management information systems fail to perform or are inadequate, our ability to manage our business could be disrupted.

We rely on computerized inventory and management systems to coordinate and manage the activities in our distribution centers, as well as to communicate distribution information to the off-site, third-party operated distribution centers with which we work. The third-party distribution centers pick up products from our suppliers, repackage the products for each of our stores and ship those products to our stores by package carriers. We use inventory replenishment systems to track sales and inventory. Our ability to rapidly process incoming shipments of new release titles and deliver them to all of our stores, either that day or by the next morning, enables us to meet peak demand and replenish stores at least twice a week, to keep our stores in stock at optimum levels and to move inventory efficiently. If our inventory or management information systems fail to adequately perform these functions, our business could be adversely affected. In addition, if operations in any of our distribution centers were to shut down or be disrupted for a prolonged period of time or if these centers were unable to accommodate the continued store growth in a particular region, our business and results of operations may be negatively impacted.

Data breaches involving customer or employee data stored by us could adversely affect our reputation and revenues.

We store confidential information with respect to our customers and employees. A compromise of our data security systems or those of businesses with which we interact could result in information related to our customers or employees being obtained by unauthorized persons. Any such breach of our systems could lead to fraudulent activity resulting in claims and lawsuits against us or other operational problems or interruptions in connection with such breaches. Consequently, despite our efforts, our security measures have been breached in the past and may be breached in the future due to cyber-attack, team member error, malfeasance, fraudulent inducement or other acts; and unauthorized parties have in the past obtained, and may in the future obtain, access to our data or our customers’ data. While costs associated with past security breaches have not been significant, any breach or unauthorized access in the future could result in significant legal and financial exposure and damage to our reputation that could potentially have an adverse effect on our business. While we also seek to obtain assurances that others with whom we interact will protect confidential information, there is a risk the confidentiality of data held or accessed by others may be compromised. If a compromise of our data security or function of our computer systems or website were to occur, it could have a material adverse effect on our operating results and financial condition and, possibly, subject us to additional legal, regulatory and operating costs and damage our reputation in the marketplace.

Also, the interpretation and enforcement of data protection laws in the United States, Europe and elsewhere are uncertain and, in certain circumstances, contradictory. These laws may be interpreted and enforced in a manner that is inconsistent with our policies and practices. If we are subject to data security breaches or government-imposed fines, we may have a loss in sales or be forced to pay damages or other amounts, which could adversely affect profitability, or be subject to substantial costs related to compliance.

Litigation and the outcomes of such litigation could negatively impact our future financial condition and results of operations.

In the ordinary course of our business, we are, from time to time, subject to various litigation and legal proceedings, including matters involving wage and hour employee class actions, stockholder and consumer class actions, tax audits and unclaimed property audits by states. The outcome of litigation and other legal proceedings and the magnitude of potential losses therefrom, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Certain of these legal proceedings, if decided adversely to us or settled by us, may require changes to our business operations that negatively impact our operating results or involve significant liability awards that impact our financial condition. The cost to defend litigation may be significant. As a result, legal proceedings may adversely affect our business, financial condition, results of operations or liquidity.

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Legislative actions and changes in accounting rules may cause our general and administrative and compliance costs to increase and impact our future financial condition and results of operations.

In order to comply with laws adopted by the U.S. government or other U.S. or foreign regulatory bodies, we may be required to increase our expenditures and hire additional personnel and additional outside legal, accounting and advisory services, all of which may cause our general and administrative and compliance costs to increase. Significant workforce-related legislative changes could increase our expenses and adversely affect our operations. Examples of possible workforce-related legislative changes include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment affecting Medicare reimbursements, product safety, supply chain transparency, and increased compliance costs related to enforcement of federal and state wage and hour statutes and common law related to overtime, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. Environmental legislation or other regulatory changes could impose unexpected costs or impact us more directly than other companies due to our operations as a global retailer. Specifically, environmental legislation or international agreements affecting energy, carbon emissions, and water or product materials are continually being explored by governing bodies. Increasing energy and fuel costs, supply chain disruptions and other potential risks to our business, as well as any significant rule making or passage of any such legislation, could materially increase the cost to transport our goods and materially adversely affect our results of operations. Additionally, regulatory and enforcement activity focused on the retail industry has increased in recent years, increasing the risk of fines and additional operational costs associated with compliance.

As a seller of certain consumer products, we are subject to various federal, state, local and international laws, regulations, and statutes relating to product safety and consumer protection.

While we take steps to comply with these laws, there can be no assurance that we will be in compliance, and failure to comply with these laws could result in penalties which could have a negative impact on our business, financial condition and results of operations. We may also be subject to involuntary or voluntary product recalls or product liability lawsuits. Direct costs or reputational damage associated with product recalls or product liability lawsuits, individually or in the aggregate, could have a negative impact on future revenues and results of operations.

Our Board of Directors could change our dividend policy at any time.

We initiated our first cash dividend on our common stock during fiscal 2012. Notwithstanding the foregoing, there is no assurance that we will continue to pay cash dividends on our common stock in the future. Certain provisions in our credit facility and covenants under the indentures for our 5.50% Senior Notes due October 1, 2019 (the “2019 Senior Notes”) and our 6.75% Senior Notes due March 15, 2021 (the "2021 Senior Notes" and, together, the “Senior Notes”), restrict our ability to pay dividends in certain circumstances. In addition, subject to any financial covenants in current or future financing agreements that directly or indirectly restrict our ability to pay dividends, the payment of dividends is within the discretion of our Board of Directors and will depend upon our future earnings and cash flow from operations, our capital requirements, our financial condition and any other factors that the Board of Directors may consider. Unless we continue to pay cash dividends on our common stock in the future, the success of an investment in our common stock will depend entirely upon its future appreciation. Our common stock may not appreciate in value or even maintain the price at which it was purchased.

We may record future goodwill impairment charges or other asset impairment charges which could negatively impact our results of operations.

In recent periods, we have recorded non-cash charges relating to the impairment of tangible and intangible assets that had an adverse effect on our consolidated statements of operations and consolidated balance sheets. Because we have grown in part through acquisitions, goodwill and other acquired intangible assets represent a substantial portion of our assets. We also have long-lived assets consisting of property and equipment and other identifiable intangible assets which we review both on an annual basis as well as when events or circumstances indicate that the carrying amount of an asset may not be recoverable. If a determination is made that a significant impairment in value of goodwill, other intangible assets or long-lived assets has occurred, such determination could require us to impair a substantial portion of our assets. Asset impairments could have a material adverse impact on our results of operations.

Risks Relating to Indebtedness

Because of our floating rate credit facility, we may be adversely affected by interest rate changes.

Our financial position may be affected by fluctuations in interest rates, as our senior credit facility is subject to floating interest rates.

Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. If we were to borrow against our senior credit facility, a significant increase in interest rates could have a negative impact on our results of operations and financial condition.

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The terms of our Senior Notes and senior credit facility may impose significant operating and financial restrictions on us.

The terms of our Senior Notes and our senior credit facility may impose significant operating and financial restrictions on us in certain circumstances. These restrictions, among other things, limit our ability to:


•	incur, assume or permit to exist additional indebtedness or guaranty obligations;


•	incur liens or agree to negative pledges in other agreements;


•	engage in sale and leaseback transactions;


•	make loans and investments;


•	declare dividends, make payments or redeem or repurchase capital stock;


•	engage in mergers, acquisitions and other business combinations;


•	prepay, redeem or purchase certain indebtedness;


•	amend or otherwise alter the terms of our organizational documents and indebtedness;


•	sell assets; and


•	engage in transactions with affiliates.

We cannot assure that these covenants will not adversely affect our ability to finance our future operations or capital needs or to pursue available business opportunities and may affect our ability to grow in accordance with our strategy. A breach of the covenants or restrictions under the indentures for the Senior Notes, or under our senior credit facility, could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the repayment of the related debt and may result in the acceleration of the repayment of any other debt to which a cross-acceleration or cross-default provision applied. In addition, an event of default under our senior credit facility would permit the lenders to terminate all commitments to extend further credit under that facility. Furthermore, if we were unable to repay the amounts due and payable under our senior credit facility, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event that our lenders or noteholders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. See Note 9, "Debt," to our consolidated financial statements for a description of our Senior Notes and senior credit facility.

To service our indebtedness, we will require a significant amount of cash. We may not be able to generate sufficient cash flow to meet our debt service obligations.

Our ability to generate sufficient cash flow from operations to make scheduled payments on our indebtedness, including without limitation any payments required to be made under our senior credit facility or to holders of our Senior Notes, and to fund our operations, will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, including the Senior Notes, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or if that additional financing would be permitted under the terms of our various debt instruments, then in effect.

Our senior credit facility and the indentures governing the Senior Notes restrict our ability to dispose of assets and use the proceeds from those sales and raise debt or equity to meet any debt service obligations then due. Our ability to refinance would also depend upon the condition of the finance and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, including the Senior Notes, or to refinance our obligations on commercially reasonable terms or on a timely basis, would have an negative impact on our business, results of operations and financial condition.

Despite current indebtedness levels, we and our subsidiaries may still be able to incur additional debt. This could further increase the risks associated with our leverage.

We are able to incur additional indebtedness. Although our senior credit facility and the indentures for our Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent us from incurring obligations that do not constitute indebtedness. Such future indebtedness or obligations may have restrictions similar to, or more restrictive than, those included in the indentures for our Senior Notes or our senior credit facility. The incurrence of additional indebtedness could impact our financial condition and results of operations.



ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.

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ITEM 2.	PROPERTIES

All of our stores are leased. Store leases typically provide for an initial lease term of five to ten years, plus renewal options. This arrangement gives us the flexibility to pursue extension or relocation opportunities that arise from changing market conditions. We believe that, as current leases expire, we will be able to obtain either renewals at present locations, leases for equivalent locations in the same area, or be able to close the stores with expiring leases and transfer enough of the sales to other nearby stores to improve, if not at least maintain, profitability.

The terms of the store leases for the 7,535 leased stores open as of January 28, 2017 expire as follows:



Lease Terms to Expire During (12 Months Ending on or About January 28)		Number of Stores
2018		1,730
2019		1,741
2020		1,658
2021		1,206
2022 and later		1,200
Total		7,535

As of January 28, 2017, we owned eight and leased 13 office and distribution facilities, totaling approximately 2.2 million square feet. The lease expiration dates for the leased facilities range from 2017 to 2024, with an average remaining lease life of approximately five years. Our principal facilities are as follows:



Location	Square Footage	Owned or Leased	Use
Grapevine, Texas, USA	519,000	Owned	Distribution and administration
Grapevine, Texas, USA	182,000	Owned	Manufacturing and distribution
Shepherdsville, Kentucky, USA	631,000	Leased	Distribution
Brampton, Ontario, Canada	119,000	Owned	Distribution and administration
Eagle Farm, Queensland, Australia	185,000	Owned	Distribution and administration
Milan, Italy	123,000	Owned	Distribution and administration

Additional information regarding our properties can be found in Item 1, “Business—Store Operations” and Item 1, “Business—Site Selection and Locations” in this Form 10-K.



ITEM 3.	LEGAL PROCEEDINGS

In the ordinary course of business, we are, from time to time, subject to various legal proceedings, including matters involving wage and hour employee class actions, stockholder and consumer class actions, tax audits and unclaimed property audits by states. We may enter into discussions regarding settlement of these and other types of legal proceedings, and may enter into settlement agreements, if we believe settlement is in the best interest of our stockholders. We do not believe that any such existing legal proceedings or settlements, individually or in the aggregate, will have a material effect on our financial condition, results of operations or liquidity.

Certain of our French subsidiaries have been under audit by the French Tax Administration (the "FTA") for fiscal years 2008 through 2012. We received tax reassessment notices on December 23, 2015 and April 4, 2016, pursuant to which the FTA asserted that the French subsidiaries were ineligible to claim certain tax deductions from November 4, 2008, through January 31, 2013, resulting in a potential additional tax charge of approximately €85.5 million. We may receive additional tax reassessments in material amounts for subsequent fiscal years. We filed a response to each reassessment and intend to vigorously contest the reassessments through administrative procedures. If we are unable to resolve this matter through administrative remedies at the FTA, we plan to pursue judicial remedies. We believe our tax positions will be sustained and have not taken a reserve for any potential adjustment based on the reassessment. If we were not to prevail, then the adjustment to our income tax provision could be material.



ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable.

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PART II



ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A Common Stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “GME.”

The following table sets forth, for the periods indicated, the high and low sales prices of the Class A Common Stock on the NYSE Composite Tape and the dividends declared during those periods:



	Class A Common Stock Sales Prices								Dividends Declared
	Fiscal 2016				Fiscal 2015				Fiscal Year
	High		Low		High		Low		2016		2015
Fourth Quarter	$	26.85	$	20.10	$	47.48	$	24.33	$	0.37	$	0.36
Third Quarter	$	32.67	$	23.69	$	47.83	$	38.66	0.37		0.36
Second Quarter	$	32.86	$	25.18	$	47.76	$	38.47	0.37		0.36
First Quarter	$	33.72	$	24.75	$	42.67	$	34.52	0.37		0.36
									$	1.48	$	1.44

On February 28, 2017, our Board of Directors authorized an increase in our annual cash dividend from $1.48 to $1.52 per share of Class A Common Stock. Our payment of dividends is and will continue to be restricted by or subject to, among other limitations, applicable provisions of federal and state laws, our earnings and various business considerations, including our financial condition, results of operations, cash flow, the level of our capital expenditures, our future business prospects, our status as a holding company and such other matters that our Board of Directors deems relevant. In addition, the terms of the senior credit facility and of the indentures governing our Senior Notes restrict our ability to pay dividends under certain circumstances. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” herein for further information regarding restrictions on our dividend payments.

Approximate Number of Holders of Common Equity

As of March 16, 2017, there were approximately 1,429 record holders of our Class A Common Stock.

Issuer Purchases of Equity Securities

Our purchases of our equity securities during the fourth quarter of the fiscal year ended January 28, 2017 were as follows:



Fiscal Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
					(In millions)
October 30, 2016 through November 26, 2016	755,396	$	22.63	755,396	$	192.2
November 27, 2016 through December 31, 2016	—	$	—	—	$	192.2
January 1, 2017 through January 28, 2017	903,565	$	24.35	903,565	$	170.2
Total	1,658,961			1,658,961

_______________________


(1)	In November 2014, the Board of Directors authorized $500 million to be used for share repurchases, which has no expiration date.

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Stock Comparative Performance Graph

The following graph compares the cumulative total stockholder return on our Class A Common Stock for the period commencing January 27, 2012 through January 28, 2017 (the last trading date of fiscal 2016) with the cumulative total return on the Standard & Poor’s 500 Stock Index (the “S&P 500”) and the Dow Jones Retailers, Other Specialty Industry Group Index (the “Dow Jones Specialty Retailers Index”) over the same period. Total return values were calculated based on cumulative total return assuming (i) the investment of $100 in our Class A Common Stock, the S&P 500 and the Dow Jones Specialty Retailers Index on January 27, 2012 and (ii) reinvestment of dividends.

The following stock performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor should such information be incorporated by reference into any future filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference in such filing.



	1/27/2012		2/1/2013		1/31/2014		1/30/2015		1/29/2016		1/27/2017
GME	$	100.00	$	105.35	$	154.34	$	160.54	$	123.76	$	121.01
S&P 500 Index	100.00		114.95		135.42		151.56		147.40		174.32
Dow Jones Specialty Retailers Index	100.00		106.25		135.79		169.10		173.28		199.98

Securities Authorized for Issuance under Equity Compensation Plans

For information regarding securities authorized for issuance under equity compensation plans, refer to Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

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ITEM 6.	SELECTED FINANCIAL DATA

The following table sets forth our selected consolidated financial and operating data for the periods ended and as of the dates indicated. Our fiscal year is composed of 52 or 53 weeks ending on the Saturday closest to January 31. The fiscal year ended February 2, 2013 ("fiscal 2012") consisted of 53 weeks. The fiscal years ended January 28, 2017 ("fiscal 2016"), January 30, 2016 ("fiscal 2015"), January 31, 2015 ("fiscal 2014") and February 1, 2014 ("fiscal 2013") consisted of 52 weeks. The “Statement of Operations Data” for the fiscal years ended January 28, 2017, January 30, 2016 and January 31, 2015 and the “Balance Sheet Data” as of January 28, 2017 and January 30, 2016 are derived from our audited consolidated financial statements which are included elsewhere in this Form 10-K. The “Statement of Operations Data” for fiscal years ended February 1, 2014 and February 2, 2013 and the “Balance Sheet Data” as of January 31, 2015, February 1, 2014 and February 2, 2013 are derived from our consolidated financial statements, available at sec.gov, which are not included elsewhere in this Annual Report on Form 10-K.

The selected financial data set forth below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included in this Annual Report on Form 10-K.



	Fiscal Year
	2016			2015			2014			2013			2012
	(In millions, except statistical and per share data)
Statement of Operations Data:
Net sales	$	8,607.9		$	9,363.8		$	9,296.0		$	9,039.5		$	8,886.7
Cost of sales	5,598.6			6,445.5			6,520.1			6,378.4			6,235.2
Gross profit	3,009.3			2,918.3			2,775.9			2,661.1			2,651.5
Selling, general and administrative expenses	2,252.6			2,108.9			2,001.0			1,892.4			1,835.9
Depreciation and amortization	165.2			156.6			154.4			166.5			176.5
Goodwill impairments⁽¹⁾	—			—			—			10.2			627.0
Asset impairments⁽²⁾	33.8			4.6			2.2			18.5			53.7
Operating earnings (loss)	557.7			648.2			618.3			573.5			(41.6		)
Interest expense, net	53.0			23.0			10.0			4.7			3.3
Earnings (loss) before income tax expense	504.7			625.2			608.3			568.8			(44.9		)
Income tax expense	151.5			222.4			215.2			214.6			224.9
Net income (loss)	$	353.2		$	402.8		$	393.1		$	354.2		$	(269.8	)
Per Share Data:
Earnings (loss) per share — Basic	$	3.42		$	3.80		$	3.50		$	3.02		$	(2.13	)
Earnings (loss) per share — Diluted	$	3.40		$	3.78		$	3.47		$	2.99		$	(2.13	)
Dividends per common share	$	1.48		$	1.44		$	1.32		$	1.10		$	0.80
Weighted-average common shares outstanding:
Basic	103.4			106.0			112.2			117.2			126.4
Diluted	103.8			106.7			113.2			118.4			126.4
Store Operating Data:
Comparable store sales (decrease) increase⁽³⁾	(11.0		)%	4.3		%	3.4		%	3.8		%	(8.0		)%
Inventory turnover	4.5			5.2			5.7			5.3			5.0
Number of Stores by Segment at Fiscal Year End:
United States	3,944			4,013			4,138			4,249			4,425
Canada	322			325			331			335			336
Australia	464			444			421			418			416
Europe	1,283			1,299			1,316			1,455			1,425
Technology Brands	1,522			1,036			484			218			—
Total	7,535			7,117			6,690			6,675			6,602
Balance Sheet Data at Fiscal Year End:
Working capital⁽⁴⁾	$	379.2		$	143.1		$	421.5		$	223.6		$	295.6
Total assets⁽⁴⁾	4,975.9			4,330.3			4,240.4			4,091.4			3,872.2
Total debt, net⁽⁴⁾⁽⁵⁾	815.0			345.4			349.8			4.0			—
Total liabilities⁽⁴⁾	2,721.8			2,249.3			2,172.7			1,840.0			1,585.9
Total equity	2,254.1			2,081.0			2,067.7			2,251.4			2,286.3

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___________________


(1)	Results for fiscal 2013 include a goodwill impairment charge of $10.2 million related to our decision to abandon our investment in Spawn Labs. Results for fiscal 2012 include charges related to goodwill impairments of $627.0 million resulting from our interim goodwill impairment tests performed during the third quarter of fiscal 2012.

(2)

Results for fiscal 2016 include impairment charges of $33.8 million, comprised of a $7.4 million impairment to our Micromania trade name, a $7.0 million impairment to our Simply Mac dealer agreements and $19.4 million of property and equipment impairments. Results for fiscal 2015 include impairment charges of $4.6 million, comprised of $4.4 million of property and equipment impairments and $0.2 million of intangible asset impairments. Results for fiscal 2014 include impairment charges of $2.2 million, comprised of $1.9 million of property and equipment impairments and $0.3 million of intangible asset impairments. Results for fiscal 2013 include impairments of $18.5 million, of which $7.4 million and $2.1 million were related to certain technology assets and other intangible assets, respectively, as a result of our decision to abandon our investment in Spawn Labs and the remaining $9.0 million was related to property and equipment impairments resulting from our evaluation of store property, equipment and other assets. Results for fiscal 2012 include charges related to asset impairments of $53.7 million, of which $44.9 million relates to the impairment of the Micromania trade name and $8.8 million relates to other impairment charges from the evaluations of store property, equipment and other assets.

(3)

Comparable store sales is a measure commonly used in the retail industry and indicates store performance by measuring the growth in sales for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales are comprised of sales from our Video Game Brands stores, including stand-alone collectible stores, operating for at least 12 full months as well as sales related to our websites and sales we earn from sales of pre-owned merchandise to wholesalers or dealers. Comparable store sales for our international operating segments exclude the effect of changes in foreign currency exchange rates. The calculation of comparable store sales for fiscal year 2016 compares the 52 weeks for the period ended January 28, 2017 to the most closely comparable weeks for the prior year period. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers’ methods. Our Technology Brands stores are excluded from the calculation of comparable store sales. We do not consider comparable store sales to be a meaningful metric in evaluating the performance of our Technology Brands stores due to the frequently changing nature of revenue streams and commission structures associated with this segment of our business. We believe our calculation of comparable store sales best represents our strategy as an omnichannel retailer who provides its consumers several ways to access its products.

(4)

In the first quarter of 2016, we adopted Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs, that requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. As a result, we have recast the fiscal 2015 and 2014 consolidated balance sheet to conform to the current period presentation. See Note 1, "Nature of Operations and Summary of Significant Accounting Policies," for additional information.


(5)	In March 2016, we issued $475 million aggregate principal of 6.75% unsecured senior notes due in March 2021. In September 2014, we issued $350.0 million aggregate principal of 5.50% unsecured senior notes due in October 2019. See Note 9, "Debt," to our consolidated financial statements for additional information.

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ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information contained in our consolidated financial statements, including the notes thereto. Statements regarding future economic performance, management’s plans and objectives, and any statements concerning assumptions related to the foregoing contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute forward-looking statements. Certain factors, which may cause actual results to vary materially from these forward-looking statements, accompany such statements or appear elsewhere in this Form 10-K, including the factors disclosed under Part I, Item 1A, “Risk Factors.”

OVERVIEW

GameStop Corp. (“GameStop,” “we,” “us,” “our,” or the “Company”) is a global family of specialty retail brands. Through our 6,013 video game brand stores and e-commerce sites in eight countries, we are the world's largest omnichannel retailer of video game products. We also offer wireless products and services and consumer technology products through our 1,403 AT&T authorized retailer stores, 69 Cricket pre-paid wireless stores and 50 Simply Mac stores, a certified reseller of Apple consumer electronic products. In addition, we are a leading retailer of collectible pop-culture themed products.

We have five reportable segments, which are comprised of four geographic Video Game Brands segments—United States, Canada, Australia and Europe—and a Technology Brands segment. Our Technology Brands segment includes our Spring Mobile and Simply Mac businesses. Spring Mobile owns and operates our AT&T branded wireless retail stores and Cricket branded pre-paid wireless stores.

Growth in the video game industry is generally driven by the introduction of new technology. Gaming consoles are typically launched in cycles as technological developments provide significant improvements in graphics, audio quality, game play, internet connectivity and other entertainment capabilities beyond video gaming. The current generation of consoles (the Sony PlayStation 4 and the Microsoft Xbox One) was introduced in 2013. In August and November 2016, Microsoft and Sony released refreshes to the current generation of consoles. Additionally, Sony introduced its virtual reality hardware, PlayStation VR, in October 2016 and Nintendo introduced its new console, Nintendo Switch, in March 2017.

We expect that future growth in the video game industry will also be driven by the sale of video games delivered in digital form and the expansion of other forms of gaming. We currently sell various types of products that relate to the digital category, including digitally downloadable content (“DLC”), full-game downloads, Xbox LIVE, PlayStation Plus and Nintendo network points cards, as well as prepaid digital and prepaid subscription cards. We have made significant investments in e-commerce and in-store and website functionality to enable our customers to access digital content easily and facilitate the digital sales and delivery process. We plan to continue to invest in these types of processes and channels to grow our digital sales base and enhance our market leadership position in the video game industry and in the digital aggregation and distribution category.

We continue to diversify our business by seeking out opportunities to extend our core competencies to other businesses and retail categories, including mobile and consumer electronics and collectibles, to continue to grow and to help mitigate the financial impact from the cyclical nature of the video game console cycle and regularly evaluate potential acquisition opportunities, some of which could be material. From fiscal 2013 through fiscal 2016, we have grown our store count of AT&T authorized retailers by 1,239 stores, primarily through acquisitions. In 2014, we introduced stand-alone collectibles stores and expanded the selection of collectible products in our stores. To further expand our collectibles business, we acquired ThinkGeek in 2015, and we plan to continue investing in this category going forward. We continue to seek to invest in other retail concepts and product lines with the intention of further diversifying our business.

In our discussion of the results of operations, we refer to comparable store sales which is a measure commonly used in the retail industry and indicates store performance by measuring the growth in sales for certain stores for a particular period over the corresponding period in the prior year. Our comparable store sales are comprised of sales from our Video Game Brands stores, including stand-alone collectible stores, operating for at least 12 full months as well as sales related to our websites and sales we earn from sales of pre-owned merchandise to wholesalers or dealers. Comparable store sales for our international operating segments exclude the effect of changes in foreign currency exchange rates. The calculation of comparable store sales for fiscal year 2016 compares the 52 weeks for the period ended January 28, 2017 to the most closely comparable weeks for the prior year. The method of calculating comparable store sales varies across the retail industry. As a result, our method of calculating comparable store sales may not be the same as other retailers’ methods. Our Technology Brands stores are excluded from the calculation of comparable store sales. We do not consider comparable store sales to be a meaningful metric in evaluating the performance of our Technology Brands stores due to the frequently changing nature of revenue streams and commission structures associated with this segment of our business. We believe our calculation of comparable store sales best represents our strategy as an omnichannel retailer who provides its consumers several ways to access its products.

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STORE COUNT INFORMATION

The following table presents the number of stores and the number of stores opened, acquired and closed during fiscal 2016:



	January 30, 2016	Opened/Acquired	Closed		January 28, 2017
Video Game Stores	6,046	21	(140	)	5,927
Collectibles Stores	35	52	(1	)	86
Total Video Game Brands	6,081	73	(141	)	6,013

Spring Mobile	890	575	(62	)	1,403
Cricket	70	8	(9	)	69
Simply Mac	76	—	(26	)	50
Total Technology Brands	1,036	583	(97	)	1,522

Total Stores	7,117	656	(238	)	7,535

SEASONALITY

Our business, like that of many retailers, is seasonal, with the major portion of sales and operating profit realized during the fourth quarter which includes the holiday selling season. Results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year. Quarterly results may fluctuate materially depending upon, among other factors, the timing of new product introductions and new store openings, sales contributed by new stores, increases or decreases in comparable store sales, the nature and timing of acquisitions, adverse weather conditions, shifts in the timing of certain holidays or promotions and changes in our merchandise mix.

CONSOLIDATED RESULTS OF OPERATIONS

The following table sets forth certain statement of operations items (in millions) and as a percentage of net sales, for the periods indicated:



	Fiscal Year 2016				Fiscal Year 2015				Fiscal Year 2014
	Amount		Percent of Net Sales		Amount		Percent of Net Sales		Amount		Percent of Net Sales
Net sales	$	8,607.9	100.0	%	$	9,363.8	100.0	%	$	9,296.0	100.0	%
Cost of sales	5,598.6		65.0		6,445.5		68.8		6,520.1		70.1
Gross profit	3,009.3		35.0		2,918.3		31.2		2,775.9		29.9
Selling, general and administrative expenses	2,252.6		26.2		2,108.9		22.6		2,001.0		21.6
Depreciation and amortization	165.2		1.9		156.6		1.7		154.4		1.7
Asset impairments	33.8		0.4		4.6		—		2.2		—
Operating earnings	557.7		6.5		648.2		6.9		618.3		6.6
Interest expense, net	53.0		0.6		23.0		0.2		10.0		0.1
Earnings before income tax expense	504.7		5.9		625.2		6.7		608.3		6.5
Income tax expense	151.5		1.8		222.4		2.4		215.2		2.3
Net income	$	353.2	4.1	%	$	402.8	4.3	%	$	393.1	4.2	%

We include purchasing, receiving and distribution costs in selling, general and administrative expenses in the statement of operations. We include processing fees associated with purchases made by check and credit cards in cost of sales in the statement of operations. As a result of these classifications, our gross margins are not comparable to those retailers that include purchasing, receiving and distribution costs in cost of sales and include processing fees associated with purchases made by check and credit cards in selling, general and administrative expenses. The net effect of these classifications as a percentage of sales has not historically been material.

In fiscal 2016, we revised the classification of sales and gross profit of mobile and consumer electronics and other when presenting financial information for significant product categories. Prior to these revisions, we presented a product category labeled "mobile and consumer electronics" which was comprised of mobile and consumer electronics sold through our Video Game Brands segments and Technology Brands segment. We also included sales and gross profit of collectibles in "Other." In this Annual Report on Form 10-K, sales and gross profit of mobile and consumer electronics generated by our Technology Brands segment are separately presented as "Technology Brands" and sales and gross profit of mobile and consumer electronics generated by our Video Game Brands segments are included in "Other." In addition, sales and gross profit of collectibles are separately presented as "Collectibles."

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We believe this presentation of our product categories is more meaningful to our investors considering (i) gross margins of mobile and consumer electronics in our Technology Brands segment differ from our Video Game Brands segments and (ii) sales of collectibles have grown significantly. Sales and gross profit data for prior periods have been recast to the current period presentation.

The following tables set forth, by significant product category, net sales and gross profit information for the periods indicated (dollars in millions):



	Fiscal Year 2016				Fiscal Year 2015				Fiscal Year 2014
	Net Sales		Percent of Total		Net Sales		Percent of Net Sales		Net Sales		Percent of Net Sales
New video game hardware⁽¹⁾	$	1,396.7	16.2	%	$	1,944.7	20.8	%	$	2,028.7	21.8	%
New video game software	2,493.4		29.0		2,905.1		31.0		3,089.0		33.2
Pre-owned and value video game products	2,254.1		26.2		2,374.7		25.4		2,389.3		25.7
Video game accessories	676.7		7.9		703.0		7.5		653.6		7.1
Digital	181.0		2.1		188.3		2.0		216.3		2.3
Technology Brands⁽²⁾	814.0		9.5		534.0		5.7		328.6		3.5
Collectibles	494.1		5.7		309.7		3.3		75.8		0.8
Other⁽³⁾	297.9		3.4		404.3		4.3		514.7		5.6
Total	$	8,607.9	100.0	%	$	9,363.8	100.0	%	$	9,296.0	100.0	%



	Fiscal Year 2016				Fiscal Year 2015				Fiscal Year 2014
	Gross Profit		Gross Profit Percent		Gross Profit		Gross Profit Percent		Gross Profit		Gross Profit Percent
New video game hardware⁽¹⁾	$	154.2	11.0	%	$	175.5	9.0	%	$	196.6	9.7	%
New video game software	600.4		24.1		689.3		23.7		716.9		23.2
Pre-owned and value video game products	1,044.1		46.3		1,114.5		46.9		1,146.3		48.0
Video game accessories	235.2		34.8		255.5		36.3		246.1		37.7
Digital	155.5		85.9		149.6		79.4		152.0		70.3
Technology Brands⁽²⁾	554.6		68.1		306.6		57.4		169.1		51.5
Collectibles	171.6		34.7		116.6		37.6		31.9		42.1
Other⁽³⁾	93.7		31.5		110.7		27.4		117.0		22.7
Total	$	3,009.3	35.0	%	$	2,918.3	31.2	%	$	2,775.9	29.9	%

___________________


(1)	Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.


(2)	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business.


(3)	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form.

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Fiscal 2016 Compared to Fiscal 2015



	Fiscal Year				Change
	2016		2015		$			%
	($ in millions)
Net sales	$	8,607.9	$	9,363.8	$	(755.9	)	(8.1	)%
Cost of sales	5,598.6		6,445.5		(846.9		)	(13.1	)
Gross profit	3,009.3		2,918.3		91.0			3.1
Selling, general and administrative expenses	2,252.6		2,108.9		143.7			6.8
Depreciation and amortization	165.2		156.6		8.6			5.5
Asset impairments	33.8		4.6		29.2			634.8
Operating earnings	557.7		648.2		(90.5		)	(14.0	)
Interest expense, net	53.0		23.0		30.0			130.4
Earnings before income tax expense	504.7		625.2		(120.5		)	(19.3	)
Income tax expense	151.5		222.4		(70.9		)	(31.9	)
Net income	$	353.2	$	402.8	$	(49.6	)	(12.3	)%



	Net Sales				Change
	Fiscal Year 2016		Fiscal Year 2015		$			%
	($ in millions)
New video game hardware⁽¹⁾	$	1,396.7	$	1,944.7	$	(548.0	)	(28.2	)%
New video game software	2,493.4		2,905.1		(411.7		)	(14.2	)
Pre-owned and value video game products	2,254.1		2,374.7		(120.6		)	(5.1	)
Video game accessories	676.7		703.0		(26.3		)	(3.7	)
Digital	181.0		188.3		(7.3		)	(3.9	)
Technology Brands⁽²⁾	814.0		534.0		280.0			52.4
Collectibles	494.1		309.7		184.4			59.5
Other⁽³⁾	297.9		404.3		(106.4		)	(26.3	)
Total	$	8,607.9	$	9,363.8	$	(755.9	)	(8.1	)%



	Gross Profit				Change
	Fiscal Year 2016		Fiscal Year 2015		$			%
	($ in millions)
New video game hardware⁽¹⁾	$	154.2	$	175.5	$	(21.3	)	(12.1	)%
New video game software	600.4		689.3		(88.9		)	(12.9	)
Pre-owned and value video game products	1,044.1		1,114.5		(70.4		)	(6.3	)
Video game accessories	235.2		255.5		(20.3		)	(7.9	)
Digital	155.5		149.6		5.9			3.9
Technology Brands⁽²⁾	554.6		306.6		248.0			80.9
Collectibles	171.6		116.6		55.0			47.2
Other⁽³⁾	93.7		110.7		(17.0		)	(15.4	)
Total	$	3,009.3	$	2,918.3	$	91.0		3.1	%

___________________


(1)	Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.


(2)	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business.


(3)	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form.

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Net Sales

Net sales decreased $755.9 million, or 8.1%, in fiscal 2016 compared to fiscal 2015. The decrease in net sales was primarily attributable to a decrease in comparable store sales of 11.0% compared to the prior year. The decrease in comparable store sales was primarily the result of a decrease in sales of video game hardware and software. These decreases were partially offset by an increase in sales in Technology Brands and collectibles as a result of the Company's diversification efforts.

The decrease in net sales was due to the following:


•	New video game hardware sales decreased $548.0 million, or 28.2%, for fiscal 2016 as compared to fiscal 2015, primarily due to a decline in the quantity of hardware units sold combined with a reduction in selling price of certain models as the console cycle matures.


•	New video game software sales decreased $411.7 million, or 14.2%, for fiscal 2016 as compared to fiscal 2015, primarily due to weaker new title releases in the current year.


•	Pre-owned and value video game product sales decreased $120.6 million, or 5.1%, for fiscal 2016 as compared to fiscal 2015, primarily due to the decrease in store traffic as a result of weaker new release titles and hardware unit sales declines in the current year.


•	Other sales decreased $106.4 million, or 26.3%, for fiscal 2016 as compared to fiscal 2015, primarily due to the decline in sales of interactive game figures and mobile and consumer electronics sold through our Video Game Brands stores.

The decreases described above were partially offset by the following:


•	Technology Brands sales increased $280.0 million, or 52.4%, for fiscal 2016 as compared to fiscal 2015, primarily due to the acquisition and opening of Spring Mobile managed AT&T stores within the Technology Brands segment.


•	Collectibles sales increased $184.4 million, or 59.5%, for fiscal 2016 compared to fiscal 2015, due to the acquisition of ThinkGeek in July 2015, the growth of collectibles sales in our Video Game Brands stores and the growth in the number of stand-alone collectibles stores.

Cost of Sales

Cost of sales decreased $846.9 million, or 13.1%, in fiscal 2016 compared to fiscal 2015, primarily as a result of the changes in gross profit discussed below.

Gross Profit

Gross profit increased $91.0 million, or 3.1%, in fiscal 2016 compared to fiscal 2015, and gross profit as a percentage of net sales was 35.0% in fiscal 2016 compared to 31.2% in fiscal 2015. The increase in gross profit was primarily driven by our diversification efforts through the growth of Technology Brands and collectibles. Gross profit from Technology Brands increased $248.0 million, mainly due to growth through acquisitions and new store openings, and gross profit from collectibles increased by $55.0 million. In addition, gross profit from digital increased by $5.9 million. These increases were partially offset by decreases primarily in new video game software of $88.9 million, pre-owned and value video game products of $70.4 million, new video game hardware of $21.3 million, video game accessories of $20.3 million and other of $17.0 million.

The net increase in gross profit as a percentage of net sales was due to product mix shift between categories as our Technology Brands and collectibles categories continue to grow and the following product margin rate variances:


•	Gross profit as a percentage of sales on Technology Brands sales increased to 68.1% in fiscal 2016 from 57.4% in fiscal 2015 due to the growth in the number of Spring Mobile stores which carry higher margins than the other businesses inside Technology Brands.


•	Gross profit as a percentage of sales on digital sales increased to 85.9% in fiscal 2016 from 79.4% in fiscal 2015 primarily due to a change in the mix of sales and the related commissions on the digital products we sold.


•	Gross profit as a percentage of sales of other products increased to 31.5% in fiscal 2016 from 27.4% in fiscal 2015 primarily driven by higher gross margin in mobile and consumer electronics sold through our Video Game Brands stores.

The increases described above were partially offset by the following:


•	Gross profit as a percentage of sales on collectibles decreased to 34.7% in fiscal 2016 from 37.6% in fiscal 2015, due to the addition of the ThinkGeek.com business in July 2015 which carries higher fulfillment costs compared to our in-store sales.


•	Gross profit as a percentage of sales on video game accessories decreased to 34.8% in fiscal 2016 from 36.3% in fiscal 2015, due to the introduction of the PlayStation VR in fiscal 2016, which carries a lower gross margin than other accessory products.

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•	Gross profit as a percentage of sales on pre-owned and value video game products decreased to 46.3% in fiscal 2016 from 46.9% in fiscal 2015 due to a greater mix of sales of current generation products, which carry lower gross margin than previous generation products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased $143.7 million, or 6.8%, in fiscal 2016 compared to fiscal 2015.

The growth of Technology Brands contributed $195.2 million to the increase of SG&A, primarily driven by the addition of 486 stores when compared to the prior year and a higher SG&A as a percentage of sales compared to our Video Game Brands segments. The increase in SG&A related to Technology Brands includes store closure costs totaling $19.8 million in fiscal 2016, primarily associated with consolidating the Technology Brands segment store portfolio following increased acquisition activity. These increases were partially offset by a $31.9 million decrease to incentive compensation in our Video Game Brands segments, various cost reduction efforts and $7.4 million in acquisition-related costs associated with ThinkGeek incurred in the prior year.

Depreciation and Amortization

Depreciation and amortization expense increased $8.6 million, or 5.5%, in fiscal 2016 compared to fiscal 2015. This increase was primarily due to the acquisition and opening of stores in our Technology Brands segment.

Asset Impairments

During fiscal 2016, we recognized asset impairment charges totaling $33.8 million. These charges consisted of $19.4 million in impairments to store-level property and equipment, a $7.4 million impairment of our Micromania trade name intangible asset, and a $7.0 million impairment to our Simply Mac dealer agreement intangible asset. The Micromania trade name is associated with our operations in France. The property and equipment impairments were primarily related to our Technology Brands segment. In fiscal 2015, we recognized asset impairment charges totaling $4.6 million, primarily related to store-level property and equipment impairments in our Video Game Brands segments.

Interest Expense, Net

Interest expense, net of $53.0 million for fiscal 2016 increased $30.0 million from $23.0 million in fiscal 2015 primarily due to the $475.0 million issuance of unsecured 6.75% senior notes due March 15, 2021 in March 2016, which is further discussed in Note 9, "Debt," to our consolidated financial statements.

Income Tax

Income tax expense was $151.5 million, representing an effective tax rate of 30.0% in fiscal 2016, compared to $222.4 million, representing an effective tax rate of 35.6% in fiscal 2015. The decrease in the effective income tax rate compared to the prior year was primarily driven by the recognition of tax benefits related to our adoption of a plan of reorganization specific to certain foreign operations, which resulted in our ability to recognize the benefit of foreign net operating losses that were previously unrecognized, partially offset by increases in our valuation allowance, changes in uncertain tax positions and the relative mix of earnings across the jurisdictions in which we operate. Refer to Note 7, "Income Taxes," to our consolidated financial statements for additional information regarding income taxes.

Operating Earnings and Net Income

The factors described above led to operating earnings of $557.7 million for fiscal 2016, or a 14.0% decrease from operating earnings of $648.2 million for fiscal 2015. Additionally, net income was $353.2 million for fiscal 2016, which represented a 12.3% decrease from net income of $402.8 million for fiscal 2015.

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Fiscal 2015 Compared to Fiscal 2014



	Fiscal Year				Change
	2015		2014		$			%
	($ in millions)
Net sales	$	9,363.8	$	9,296.0	$	67.8		0.7	%
Cost of sales	6,445.5		6,520.1		(74.6		)	(1.1	)
Gross profit	2,918.3		2,775.9		142.4			5.1
Selling, general and administrative expenses	2,108.9		2,001.0		107.9			5.4
Depreciation and amortization	156.6		154.4		2.2			1.4
Asset impairments	4.6		2.2		2.4			109.1
Operating earnings	648.2		618.3		29.9			4.8
Interest expense, net	23.0		10.0		13.0			130.0
Earnings before income tax expense	625.2		608.3		16.9			2.8
Income tax expense	222.4		215.2		7.2			3.3
Net income	$	402.8	$	393.1	$	9.7		2.5	%



	Net Sales				Change
	Fiscal Year 2015		Fiscal Year 2014		$			%
	($ in millions)
New video game hardware⁽¹⁾	$	1,944.7	$	2,028.7	$	(84.0	)	(4.1	)%
New video game software	2,905.1		3,089.0		(183.9		)	(6.0	)
Pre-owned and value video game products	2,374.7		2,389.3		(14.6		)	(0.6	)
Video game accessories	703.0		653.6		49.4			7.6
Digital	188.3		216.3		(28.0		)	(12.9	)
Technology Brands⁽²⁾	534.0		328.6		205.4			62.5
Collectibles	309.7		75.8		233.9			308.6
Other⁽³⁾	404.3		514.7		(110.4		)	(21.4	)
Total	$	9,363.8	$	9,296.0	$	67.8		0.7	%



	Gross Profit				Change
	Fiscal Year 2015		Fiscal Year 2014		$			%
	($ in millions)
New video game hardware⁽¹⁾	$	175.5	$	196.6	$	(21.1	)	(10.7	)%
New video game software	689.3		716.9		(27.6		)	(3.8	)
Pre-owned and value video game products	1,114.5		1,146.3		(31.8		)	(2.8	)
Video game accessories	255.5		246.1		9.4			3.8
Digital	149.6		152.0		(2.4		)	(1.6	)
Technology Brands⁽²⁾	306.6		169.1		137.5			81.3
Collectibles	116.6		31.9		84.7			265.5
Other⁽³⁾	110.7		117.0		(6.3		)	(5.4	)
Total	$	2,918.3	$	2,775.9	$	142.4		5.1	%

___________________


(1)	Includes sales of hardware bundles, in which physical hardware and digital or physical software are sold together as a single SKU.


(2)	Includes mobile and consumer electronics sold through our Technology Brands segment, which includes the operations of our Spring Mobile managed AT&T and Cricket Wireless branded stores and our Simply Mac business.


(3)	Includes sales of PC entertainment software, interactive game figures, strategy guides, mobile and consumer electronics sold through our Video Game Brands segments, and revenues from PowerUp Pro loyalty members receiving Game Informer magazine in print form.

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Net Sales

Net sales increased $67.8 million, or 0.7%, in fiscal 2015 compared to fiscal 2014. The increase in net sales during fiscal 2015 was primarily attributable to an increase in comparable store sales of 4.3% compared to fiscal 2014, due to strong sales performance in fiscal 2015 associated with video game accessories, interactive game figures and collectibles. Overall sales growth also benefited from the continued growth of our Technology Brands stores and our July 2015 acquisition of the ThinkGeek business. These increases were partially offset by the impact of foreign exchange rate fluctuations, which had the effect of decreasing net sales by $430.2 million in fiscal 2015 compared to fiscal 2014.

The increase in net sales was due to the following:


•	Collectibles sales increased $233.9 million, or 308.6%, for fiscal 2015 as compared to fiscal 2014, due to the growth of collectibles sales in our Video Game Brands stores, the acquisition of ThinkGeek in July 2015 and the growth in the number of stand-alone collectibles stores.


•	Technology Brands sales increased $205.4 million, or 62.5%, for fiscal 2015 as compared to fiscal 2014, due to the acquisition and opening of stores within the Technology Brands segment.


•	Video game accessories sales increased $49.4 million, or 7.6%, for fiscal 2015 as compared to fiscal 2014, due to sales of accessories for use with the current generation consoles.

The increases described above were partially offset by the following:

•

New video game software sales decreased $183.9 million, or 6.0%, for fiscal 2015 as compared to fiscal 2014, primarily due to unfavorable foreign exchange rate fluctuations, which had the effect of decreasing net sales by $157.7 million for fiscal 2015 as compared to fiscal 2014. Excluding the effects of currency, new video game software sales decreased $26.2 million due to fewer new titles that were released in fiscal 2015 as compared to fiscal 2014 and the decline in prior generation software sales. We expect the decline in prior generation software sales to continue.


•	Other sales decreased $110.4 million, or 21.4%, primarily driven by a decrease in mobile and consumer electronics sold through our Video Game Brands segments.


•	New video game hardware sales decreased $84.0 million, or 4.1%, for fiscal 2015 as compared to fiscal 2014, primarily due to the reduction in price on both the PS4 and Xbox One as well as unfavorable foreign exchange rate fluctuations, which had the effect of decreasing net sales by $99.2 million for fiscal 2015 as compared to fiscal 2014.


•	Digital sales decreased $28.0 million, or 12.9%, for fiscal 2015 as compared to fiscal 2014, primarily due to unfavorable foreign exchange rate fluctuations, which had the effect of decreasing net sales by $11.4 million for fiscal 2015 as compared to fiscal 2014 and a larger portion of sales recognized on a net basis compared to the prior year period.

•

Pre-owned and value video game product sales decreased $14.6 million, or 0.6%, for fiscal 2015 as compared to fiscal 2014, primarily due to unfavorable foreign exchange rate fluctuations, which had the effect of decreasing net sales by $94.6 million for fiscal 2015 as compared to fiscal 2014. Excluding the effects of currency, sales increased $80.0 million due to stronger sell-through of the current generation video game products.

Cost of Sales

Cost of sales decreased $74.6 million, or 1.1%, in fiscal 2015 compared to fiscal 2014, primarily as a result of the changes in gross profit discussed below.

Gross Profit

Gross profit increased $142.4 million, or 5.1%, in fiscal 2015 compared to fiscal 2014, and gross profit as a percentage of net sales was 31.2% in fiscal 2015 compared to 29.9% in fiscal 2014. The gross profit increase was primarily driven by the growth in Technology Brands, which carries a higher margin percentage than most of our other product categories.

The net increase in gross profit as a percentage of net sales was due to product mix shift between categories as sales in our Technology Brands and collectibles categories continued to grow and the following product margin rate variances:


•	Gross profit as a percentage of sales on Technology Brands sales increased to 57.4% in fiscal 2015 from 51.5% in fiscal 2014 due to the growth in the number of Spring Mobile stores which carry higher margins than the other businesses in Technology Brands.


•	Gross profit as a percentage of sales on digital sales increased to 79.4% in fiscal 2015 from 70.3% in fiscal 2014 primarily due to a larger portion of sales recognized on a net basis in fiscal 2015 compared to the prior year.

The increases described above were partially offset by the following:


•	Gross profit as a percentage of sales on collectibles sales decreased to 37.6% in fiscal 2015 from 42.1% in fiscal 2014, due to the acquisition of ThinkGeek in July 2015 which carries lower gross margins compared to our collectible product offerings prior to the acquisition.

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•	Gross profit as a percentage of sales on pre-owned and value video game products decreased to 46.9% in fiscal 2015 from 48.0% in fiscal 2014. The gross profit percentage decrease was driven by a greater mix of sales of next generation video game products, which carry lower margins early in the console cycle compared to the prior generation products.


•	Gross profit as a percentage of sales on video game accessories decreased to 36.3% in fiscal 2015 from 37.7% in fiscal 2014, due to the increased mix of controllers sales, which carry lower gross margins relative to the total video game accessories category.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $107.9 million, or 5.4%, in fiscal 2015 compared to fiscal 2014. The increase was primarily due to the growth of the Technology Brands segment, which carries higher selling, general and administrative expenses as a percentage of sales than the other segments. Technology Brands contributed $129.0 million to the increase for fiscal 2015 compared to fiscal 2014. Additionally, United States Video Game Brands selling, general and administrative expenses increased $76.9 million in fiscal 2015 compared to the fiscal 2014, driven mainly by costs related to the acquisition of ThinkGeek. This increase was offset in part by the impact of foreign exchange rate fluctuations, which had the effect of decreasing selling, general and administrative expenses by $96.4 million for fiscal 2015 compared to the prior year period. Included in selling, general and administrative expenses are $29.9 million and $21.5 million in stock-based compensation expense for fiscal 2015 and fiscal 2014, respectively.

Depreciation and Amortization

Depreciation and amortization expense increased $2.2 million, or 1.4%, in fiscal 2015 compared to fiscal 2014. This increase was primarily due to the acquisition and opening of stores in our Technology Brands segment.

Interest Income and Expense

Interest expense of $23.4 million for fiscal 2015 increased $12.7 million from $10.7 million in fiscal 2014 primarily due to the $350.0 million issuance of 2019 Senior Notes in September 2014, which is discussed more fully in Note 9, "Debt," to our consolidated financial statements. Interest income of $0.4 million for fiscal 2015, resulting from the investment of excess cash balances, decreased $0.3 million from $0.7 million in fiscal 2014.

Income Tax

Income tax expense was $222.4 million, representing an effective tax rate of 35.6% in fiscal 2015, compared to $215.2 million, representing an effective tax rate of 35.4% in fiscal 2014. Refer to Note 7, "Income Taxes," to our consolidated financial statements for additional information.

Operating Earnings and Net Income

The factors described above led to operating earnings of $648.2 million for fiscal 2015, or a 4.8% increase from operating earnings of $618.3 million for fiscal 2014. Additionally, net income was $402.8 million for fiscal 2015, which represented a 2.5% increase from net income of $393.1 million for fiscal 2014. The increase in operating earnings is primarily attributable to the growth in gross margin in our Video Game Brands segments.

SEGMENT PERFORMANCE

We report our business in the following segments: Video Game Brands, which consists of four geographic segments in the United States, Canada, Australia and Europe, and Technology Brands. We identified these segments based on a combination of geographic areas, the methods with which we analyze performance, the way in which our sales and profits are derived and how we divide management responsibility. Our sales and profits are driven through our physical stores which are highly integrated with our e-commerce, digital and mobile businesses. Due to this integration, our physical stores are the basis for our segment reporting. Each of the Video Game Brands segments consists primarily of retail operations, with all stores engaged in the sale of new and pre-owned video game systems, software and accessories (which we refer to as video game products), new and pre-owned mobile devices and related accessories. These products are substantially the same regardless of geographic location, with the primary differences in merchandise carried being the timing of the release of new products or technologies in the various segments.

With our presence in international markets, we have operations in several foreign currencies, including the Euro, Australian dollar, New Zealand dollar, Canadian dollar, Swiss franc, Danish kroner, Swedish krona and the Norwegian kroner.

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Operating earnings (loss) by operating segment, defined as income from operations before intercompany royalty fees, net interest expense and income taxes, and net sales by reportable segment in U.S. dollars were as follows (in millions):



As of and for the Fiscal Year Ended January 28, 2017	United States			Canada			Australia			Europe			Technology Brands		Consolidated
Net sales	$	5,488.9		$	382.0		$	609.5		$	1,313.5		$	814.0	$	8,607.9
Segment operating earnings	$	430.2		$	22.4		$	34.9		$	26.0		$	44.2	$	557.7
Segment Operating data:
Store count	3,944			322			464			1,283			1,522		7,535
Comparable store sales⁽¹⁾	(13.5		)%	(12.6		)%	(2.0		)%	(2.7		)%	n/a		(11.0		)%



As of and for the Fiscal Year Ended January 30, 2016	United States			Canada			Australia		Europe		Technology Brands		Consolidated
Net sales	$	6,435.1		$	446.6		$	591.4	$	1,356.7	$	534.0	$	9,363.8
Segment operating earnings	$	504.3		$	29.4		$	38.7	$	48.8	$	27.0	$	648.2
Segment Operating data:
Store count	4,013			325			444		1,299		1,036		7,117
Comparable store sales⁽¹⁾	4.8		%	9.8		%	7.5