GMEGameStop

We note your response to comment 1. Your valuation allowance adjustment appears to result in an individually tailored income tax recognition method. Please revise your presentation to omit this adjustment. Refer to Question 100.04 of the Non-GAAP Financial Measures Compliance and Disclosure Interpretations.

The Company acknowledges the Staff’s comment and in future filings will not include changes in its valuation allowance as a non-GAAP adjustment to tax expense used in calculating Adjusted Net Income.

If you have any further questions or comments, or if you require any additional information, please contact the undersigned by telephone at (650) 863-2396. Read in the reply ↗

We note in arriving at adjusted net income you have included a tax valuation allowance adjustment. Please tell us what this adjustment represents, how you calculated the amount and why it is appropriate.

As a supplement to our financial results presented in accordance with GAAP in our quarterly earnings press releases, we present adjusted net income (loss), a non-GAAP financial measure. Our computation of adjusted net income (loss) presented in our earnings press release for fiscal year 2020 includes the effect of a $53 million tax valuation allowance computed in accordance with GAAP.

Management considers adjusted net income (loss) in assessing our core operating performance and believes this measure provides useful information to investors in comparing our core operating performance over

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multiple periods. Insofar as the tax valuation allowance is a non-cash adjustment that primarily reflects our expectations of, and assumptions as to, future operating results and applicable tax laws, rather than our current period performance, and is not used by management to assess the core profitability of our business operations, we believe exclusion of the deferred tax valuation allowance helps to clarify our current period performance and afford investors a view of what management considers in its assessment of core operating performance.

In the first fiscal quarter of fiscal 2020, we recorded a valuation allowance on $53 million of U.S. and state deferred tax assets. Notes 2 and 10 of the unaudited financial statements included in our Quarterly Report on Form 10-Q for the quarter ended May 2, 2020 discuss our assessment of the recoverability of these deferred tax assets and our rationale for recording the valuation allowance. Note 9 of the audited financial statements included in our Annual Report on Form 10-K for the year ended January 30, 2021 (the “2020 Form 10-K”) further details the components of the first quarter valuation allowance ($45.5 million in respect of U.S. deferred tax assets and $7.6 million in respect of state deferred tax assets).

We wish to highlight for the Staff that, in preparing this response, we identified that the $53 million add-back to net income on account of the valuation allowance in our computation of adjusted net income (loss) inadvertently omitted a $29.2 million valuation allowance that we recorded in the fourth quarter of fiscal year 2020 in respect of foreign deferred tax assets. This allowance is disclosed in Note 9 of the 2020 Form 10-K and together with the above-referenced $45.5 million and $7.6 million in respect of U.S. deferred tax assets and state deferred tax assets, respectively, equates to a total of $82.3 million of valuation allowances. In future earnings releases that disclose, for comparative purposes, adjusted net income (loss) for fiscal year 2020, we will include the additional $29.2 million. This correction does not, and will not, affect our financial statements prepared in accordance with GAAP.

If you have any further questions or comments, or if you require any additional information, please contact the undersigned by telephone at (650) 863-2396.

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Reference is made to your bold disclosure of adjusted operating income on page 1 which precedes the most directly comparable GAAP measure. Please present the most directly comparable GAAP measure with equal or greater prominence in future filings.

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Refer to Item 10(e)(1)(i)(A) of Regulation S-K and Question 102.10 of the Division of Corporation Finance's Compliance and Disclosure Interpretations for Non- GAAP Financial Measures.

The Company acknowledges the Staff’s comment and will present the most directly comparable GAAP measure with equal or greater prominence in future filings. Read in the reply ↗

Reference is made to your disclosure of adjusted free cash flow on page 12. Item 10(e)(1)(ii)(A) of Regulation S-K prohibits excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures, other than the measures earnings before interest and taxes (EBIT) and earnings before

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interest, taxes, depreciation and amortization (EBITDA). Please tell us why this non-GAAP measure is not prohibited given the adjustment for the rollover of accounts payable payments. In closing, we remind you that the company and its management are responsible for the accuracy and adequacy of their disclosures, notwithstanding any review, comments, action or absence of action by the staff.

In determining the appropriateness of the inclusion of our non-GAAP financial measure, adjusted free cash flow, in our earnings release, we referred to Instruction 2 to Item 2.02 of Form 8-K which provides that “[t]he requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K shall apply to disclosures under this Item 2.02.” In addition, we referred to Release No.

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34-47226, adopted January 22, 2003, which provides further clarification that only the requirements of paragraph (e)(1)(i), and not paragraph (e)(1)(ii), of Item 10 apply to disclosures furnished pursuant to Item 2.02 of Form 8-K. In that Release, the Commission stated that in order “to provide certain of the protections provided by the amendments to Item 10 of Regulation S-K and Item 10 of Regulation S-B to earnings releases, even if they are not filed, we have included in Item 12 [now Item 2.02] of Form 8-K the requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K … The other amendments to Item 10 of Regulation S-K and Item 10 of Regulation S-B would not apply.” As a result, we believe that the requirements of Item 10(e)(1)(ii)(A) of Regulation S-K do not apply to disclosures furnished pursuant to Item 2.02 of Form 8-K. However, the Company acknowledges the Staff’s comment and will not present rollover of accounts payable payments or similar adjustments that exclude liabilities that will require cash settlement adjustments to free cash flow in subsequent periods.

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We note you have presented the non-GAAP measure digital receipts and define this measure as the full amount paid by the customer for digital content at the time of sale and/or the value attributed to digital content when physical and digital products are sold combined.

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Please tell us in more detail what this measure represents, as this is unclear to us from the definition included in your earnings release, and revise future presentations of this measure to clarify this to your investors. Your response should clarify how this measure differs from your GAAP digital revenue and related GAAP deferred revenue. We may have further comments after reviewing your response.

Digital Sales Background

We sell a variety of digital products which generally allow consumers to purchase full game downloads, downloadable content or point of sale activated cards redeemable for digital content. Certain of these products do not require us to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these products from us, consumers pay a retail price and we earn a commission based on a percentage of the retail sale as negotiated with the product publisher.

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We recognize these commissions as revenue at the time of sale of these digital products.

What is Included in Digital Receipts

Our measure of non-GAAP digital receipts is primarily comprised of the gross retail value (the amount paid by the customer at point-of-sale) for the sale of these digital products. Also included in non-GAAP digital receipts are sales of digital subscriptions to our Game Informer magazine, and gross revenues from our Kongregate business, which we sold in 2017.

How Digital Receipts Differ from GAAP Digital Revenue and Related Deferred Revenue

Items classified in digital receipts are reflected below with their associated GAAP and non-GAAP values:

Product

Digital Receipts

(non-GAAP)

Digital Revenue

(GAAP)

Deferred

Revenue

Digital content sold by itself

Gross retail value

Net commission

No

Digital content sold in bundles (1)

Allocation of gross retail value

None (2)

Game Informer - digital version

Gross retail value at time of sale

Amortization of gross retail value over the subscription period

Yes (3)

____________________________

(1)

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

(2)

We take possession and have the risk of loss for bundles that include digital content, therefore, net sales for these bundles are recognized on a gross basis. Sales of bundles are classified in other product categories, primarily in hardware and software.

(3)

The difference between GAAP revenues and non-GAAP digital receipts on Game Informer for fiscal 2017 was less than 0.1% of total non-GAAP digital receipts.

Why Digital Receipts are Relevant to Our Investors

As a retailer, we believe that it is important to show how we are participating in the digital video gaming market as this category is growing and represents a threat to the physical video game category. Digital video gaming market numbers are reported in terms of the gross retail value paid by the customer, and our net commissions reported under GAAP revenue would significantly understate our participation in the digital space. We also believe it is useful for our investors to see the sales performance of our digital products category on a comparable basis to our other product categories, specifically new physical software.

When we present our "digital receipts" non-GAAP measure in the future, the Company will include explanatory language on the usefulness of this measure as follows:

"GameStop defines digital receipts as the gross retail value of digitally downloadable content, point of sale activated cards redeemable for downloadable content and sales of subscriptions to our Game Informer magazine in digital form. We believe this measure is useful in understanding the gross impact of the digital business in a more comparable format to digital industry measures and to our other video game product categories."

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We note your response to comment 1 and the revisions you have proposed to make in future filings if you present the measure you call non-GAAP digital receipts. We have the following comments:  Please revise future filings to comply with the requirement in Item 10(e) of Regulation S-K to provide a reconciliation to the most comparable GAAP measure, or tell us why such disclosure is not required.

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If you intend to label this measure as an operating metric in future filings, please revise your disclosure to more clearly disclose what this metric represents and how it relates to your GAAP results, including clarifying that the vast majority of digital receipts relates to the sale of unbundled digital content for which you recognize revenue on a net basis.  Please also revise your description of GAAP Digital Revenue, such as that seen in the revenue recognition accounting policy in your Form 10-K, to disclose to your investors that you recognize revenue from the sale of unbundled digital content on a net basis. Your current disclosure that you earn a commission on the sale of certain digital products does not clarify which digital product sales are recognized on a net basis.

The Company acknowledges the Staff’s comments and advises the Staff that the Company intends to label its “digital receipts” measure as an operating metric in future filings. The Company will revise its disclosure accordingly and will more clearly disclose what this metric represents and how it relates to the Company’s GAAP results.

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The Company’s proposed revised disclosure is as follows:

GameStop defines digital receipts as the retail value paid by the customer for digital content sold individually or bundled with non-digital products and sales of subscriptions to our Game Informer magazine in digital form. The vast majority of our digital receipts come from digital products that are sold individually rather than bundled with other products. Under GAAP, we recognize the sale of these digital products on a net basis, whereby the commissions earned are recorded to revenue rather than the full retail price paid by the customer. We believe this operating metric is useful in understanding the size and performance of our digital business in comparison to measures of the overall digital industry revenues and our other video game product categories.

In addition, the Company will revise its description of GAAP digital revenue included in its Form 10-K to more clearly disclose that revenue is recognized on a net basis for the sale of digital content for which we do not take possession or have the risk of loss. The Company’s proposed revised disclosure is as follows:

We also sell a variety of digital products which generally allow consumers to download software or play games on the internet. The significant majority of the digital products we sell are unbundled and do not require us to purchase inventory or take physical possession of, or take title to, inventory. When purchasing these products from us, consumers pay a retail price and we earn a commission based on a percentage of the retail sale as negotiated with the digital product publisher. We recognize the sale of these digital products on a net basis, whereby the commissions earned are recorded to revenue.

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