Robert Lloyd - Chief Financial Officer and Executive Vice President Daniel Dematteo - Executive Chairman Tony Bartel - President J. Raines - Chief Executive Officer

Michael Hickey - Janco Partners, Inc. Seth Basham - Crédit Suisse AG Anthony Wible - Janney Montgomery Scott LLC Arvind Bhatia - Sterne Agee & Leach Inc. William Armstrong - CL King & Associates, Inc Mark-Andre Saucier-Nadeau Anthony Chukumba - BB&T Capital Markets Sean McGowan - Needham & Company, LLC

Good morning, welcome to GameStop Corporation's First Quarter 2011 Earnings Conference. Today's call is being recorded. [Operator Instructions] I would like to remind you that this call is covered by the Safe Harbor disclosure contained in GameStop's public documents and is the property of GameStop. It is not for rebroadcast or use by any other party without the prior written consent of GameStop. At this time, I would like to turn the call over to Dan Dematteo, Executive Chairman of GameStop Corporation. Please go ahead, sir.

Thank you, and good morning, and thank you, for attending today's conference call. With me today are Paul Raines, our CEO; Tony Bartel, our President; Rob Lloyd, EVP and CFO; and Mike Mauler, our EVP International. This morning, we released record sales and earnings for our first quarter. This performance was driven by continued market share gains of new games and growth in our used game business. We couldn't be more pleased with these results. Paul and Rob will give you more information on the quarter. Not only did we have record performance, we continued to execute on our strategic plan in many areas. As a reminder, this plan is a dynamic blueprint for the next several years, with the objective of reaching our ROIC goals and driving earnings growth. Now, some notable strategic investment and results in the quarter include, the continued growth in visitors to Kongregate, our casual gaming site, which now has 13.4 million unique visitors per month. The acquisition of Impulse, a PC digital distribution platform that will be integrated into GameStop.com. Tony will talk more about this later. The acquisition of Spawn, which gives us the ability to allow gamers to play console games in the cloud. Continued rapid growth in our digital earnings fueled by sales of console DLC. And we have made progress on other strategies, such as growing and enhancing PowerUp Rewards, GameStop.com, digital Game Informer, and others. At our investor conference, you heard Paul talk about our plan for stores and the flexibility we have given the duration of our leases. I am pleased to say we are executing the zero square footage growth plans in the U.S. and Paul will discuss this in more detail later. In closing, you'll hear a lot today about growth in digital gaming. Do not assume that all digital gaming is cannibalistic with what we sell in our stores. For us, new packaged good sales continue to grow. We have proven we can sell digital products in our stores and on our website, as witnessed by the growth in digital revenues. We are investing for the future in digital gaming, so we can own a share of these growing markets and tie them into the GameStop brand and PowerUp Rewards. With that, I'll turn it over to Paul for his comments. J. Raines: Thanks, Dan. As we begin our remarks today, we would like to thank all of our GameStop associates worldwide who strive everyday to deliver the very best customer service and innovation in video gaming. As you heard, at our Investor Day on April 1, GameStop is in the midst of executing a strategic plan that has been developed over the past two and a half years. The innovations you see driving our results today are the product of investments we made after thorough analysis of the future trends in gaming and what we see as adjacent opportunities to grow our business. It is clear to us that our investments have been effective, and investors can expect the same focus and insight into the category going forward. The first quarter was a record quarter for GameStop in many ways. Top line revenues of more than $2.28 billion was a first quarter record, and market share continue to climb to record levels. Store comps of 5.3% are the highest since the fourth quarter of 2008, and both console digital and PC digital revenues had strong double-digit growth. Our PowerUp Rewards program has reached 10 million members, allowing us to build personal customer relationships that are enhancing our in-store, online and even real estate performance. We told you earlier in the year that we would be repositioning the preowned business for growth through a series of initiatives, including the leveraging of the PowerUp Rewards program and in-store marketing. We are pleased to report first quarter growth of 9.5%, proving that our strategy is working and difficult to copy. GameStop continues to grow new software sales by putting trade currency in consumers' pockets, through our buy-sell-trade model. Last quarter alone, processing over 30 million trades in our stores, and refurbishing over 5 million units of hardware and software in our refurbishment center. As we pointed out at our Investor Day, we have significant scale in the pre-owned business, and have built high barriers to entry for competitors. A word on our real estate execution. Seasonally, we tend to close more stores during the first quarter postholiday, and are still targeting a net zero square footage growth in the United States for fiscal 2011. As we showed you in April, we have built a unique data asset that integrates our PowerUp Rewards data with our highly flexible real estate portfolio. This tool allows us to take advantage of flexible lease terms to transfer sales from closing stores to adjacent locations at minimal expense, driving comps and productivity of capital. Our real estate store operations and marketing teams have created an integrated process for store transfers that communicates directly with customers, providing them incentives for transferring their shopping to nearby stores. Our knowledge of where consumers shop is very precise, and this data creates value in our real estate in a way that is unique in retail. We have set a target on transfers of 40% to 60% of sales transfers yielding a 20% to 30% increase in contribution of the consolidated stores, and our first quarter performance is well within those targets. As is the case across many parts of GameStop's business, we are transforming our real estate process into a best-in-class consumer data driven activity that creates significant value. In the international markets, we continue to see mixed results. Our performance is showing some positive signs, but comps were negative in all segments, led by softness in Spain, Ireland and Scandinavia. As we have outlined in our strategy, our focus is to grow share in mature markets that are significant profit contributors while rationalizing cost in smaller markets. To that end, we closed 10 nonperforming stores in Spain during the first quarter and we are looking at other restructuring to reduce costs. The team continues to find efficiencies while leveraging best practices from the United States. An example of those best practices is the used sales and margin growth during the quarter internationally, as well as the international expansion of our digital initiatives. On the digital front, we saw strong growth and are especially pleased with our launch of the Call of Duty Escalation DLC. Tony will give you some color on the consumer adoption we are driving in DLC and our digital strategy, including status of our Kongregate casual game platform, Impulse PC download and Spawn Labs streaming acquisitions. As we look to the second quarter, we expect to see continued share gains, driven by our strength in merchandising, operations and digital businesses. Rob will share details of our outlook in his remarks. As we look to the rest of the year, you can expect GameStop to stay on strategy. As we pointed out in our year end guidance, we have chosen to invest approximately $0.12 per share in strategic initiatives during 2011. And the impact of that investment to our P&L is felt strongest in our second quarter, the seasonal low point of the business. Our previous investments have been well executed, and we expect to continue our track record of smart investment to differentiate GameStop with consumers and build competitive moats around our business. I will now turn the call over to Rob.

Thank you, Paul. Good morning. I'll begin by recapping our first quarter 2011 results, which in terms of revenues, operating earnings and earnings per share, are the best first quarter in our history. Total sales increased 9.5% over the first quarter of 2010, to $2.28 billion, on the strength of several categories, Nintendo 3DS sales, high definition console and software sales, preowned sales and digital receipts. Total comparable store sales were 5.3%, with plus 9.1% coming from the U.S. stores, the fifth straight quarter of positive comps. International comps were down 4% as we continue to face challenges in those markets where macroeconomic conditions have yet to improve. In these markets we're closing nonperforming stores and restructuring operations. Net earnings increased 6.9% to $80.4 million, and diluted earnings per share for the quarter were $0.56, excluding the high end guidance by $0.01, and showing 16% growth over the prior year quarter. New software sales increased 4.8% during the quarter and we again, gained U.S. software market share. New hardware increased 24.1% over the prior year quarter, led by the launch of Nintendo 3DS and strength in PlayStation 3 and Xbox 360. We exceeded 45% U.S. market share on 3DS from launch through April. Preowned product sales increased 9.5%. These results reflect efforts to use the PowerUp Rewards program to market our preowned business to consumers, and efforts to reposition the preowned business in-store to highlight the value and assortment. We described these as key focuses for 2011 in our Investor Day presentations. Our digital business increased 53% from the first quarter of last year, with strong growth in both console digital and PC digital, and we are on track to hit the growth goal we laid out in Investor Day, approximately $450 million in digital business for 2011. Gross margins declined slightly year-over-year, due to shift in sales from other categories to hardware sales. Preowned margins were 48%, comparable to the first quarter of last year and reflecting a rebound from the margin level during the fourth quarter. SG&A expenses as a percentage of sales was comparable to the first quarter of 2010, as leverage from the 5% positive comps was offset by investments in strategic initiatives. The effective tax rate was 36% for the quarter, which is in line with guidance. Total company inventory increased 12% per store, approximately half of this increase was due to currency movement and the rest was primarily due to better in-stock positions on key hardware, compared to the shortages we experienced last year. We also purchased additional PlayStation 3 hardware in anticipation of possible shortages from Japan. We ended the quarter with 102 fewer stores in the U.S. after opening 37 and closing or divesting 139 stores. Our store transfer process is yielding positive results, as we're increasing profits in the stores nearby the ones we have closed. Again, a positive impact of our PowerUp Rewards data. Internationally, we added five net new stores, opening in better performing market, such as Italy and France, while closing stores in underperforming markets like Spain and Nordic. During the quarter, we repurchased 5.9 million shares for a total of $118 million. We have approximately $380 million remaining under our current authorization. Now for the second quarter outlook. We forecast same-store sales to range from negative 2% to flat, on a net sales increase of 2% to 4%. We expect diluted earnings per share to range from $0.20 to $0.23. This compares to $0.26 per share in 2010. During the quarter, we will be deploying a portion of the $26 million we announced that we are investing in 2011 towards our strategic initiatives, including expenses to integrate Impulse. The impact on the second quarter will be approximately $0.04 per share. It's important to note that the second quarter of the year always has the lowest earnings for GameStop, and typically represents 10% or less of our annual earnings. Therefore, the impact of our strategic investments on our operating income is greatest in this quarter. As we've demonstrated in the past and as we discussed during our Investor Day presentations, our investments in strategic initiatives have already yielded positive results, and will provide earnings and ROIC growth, and shareholder returns in the future. In addition, the comparisons this quarter are difficult due to the success of the best-selling titles from last year. During the second quarter of 2010, there were four titles that sold over 500,000 units in the U.S. market. Two of those sold more than 1 million units, led by Red Dead Redemption, which sold over 2.3 million units. These comparisons were known by us as we prepared our full-year guidance for comps and earnings a couple of months ago. We are reiterating our previously announced full-year 2011 guidance, which includes total company revenue growth between 6% and 8%, with comparable store sales ranging from plus 3.5% to 5.5%, and earnings per share to range from $2.82 to $2.92, representing an EPS growth rate of 6% to 10% based on 2010's EPS of $2.65. Now I'll turn it over to Tony for his comments.

Thanks, Rob, and good morning. As Paul mentioned earlier, investments that we made in prior years are paying off at digital revenue growth, and we saw all digital areas continue to grow during the quarter. We remain on target to deliver above 50% digital growth for the year, as our digital revenue grew 53% in the first quarter. Console digital revenue grew 50%, while PC digital revenue grew 62%. I would like to provide you with an update of our digital initiatives and their results during the first quarter. At our Investor Conference, we announced that we had purchased Spawn Labs, a game streaming company and had entered into an agreement to purchase Impulse, a PC digital download company. We officially closed on Impulse two weeks ago, and we are actively working on integrating both Spawn and Impulse into the GameStop ecosystem. The integration of Impulse has already begun, as we are integrating the download engine into GameStop.com. As with everything that we do, PowerUp Rewards will also be fully integrated into Impulse. Both processes should be completed by the end of the second quarter. The Impulse catalog currently has over 1,200 games available at impulsedriven.com, and conversations with our publishing partners have already yielded significant additions to our catalog. Spawn is readying their product for the first of two betas that we will perform this year, with the first beta scheduled for early July. This private beta will test our data center infrastructure and will be limited to GameStop associates. The second beta will test our nationwide cloud infrastructure to provide service across the United States. As a reminder, our publisher-friendly business model provides an extension of the gaming experience for our PowerUp Rewards members to Internet connected devices, as well as providing a try-before-you-buy service, all with no additional modification required by the game publishers. Clearly, the implementation of our digital strategy will take close partnership with our publishing partners, and last week we completed our first round of discussions with our top publishers and platform holders to discuss our digital initiatives. We are encouraged by their response to our initiatives and will continue to partner with them as we roll out these products. They understand that our focus remains on selling physical games and extending the gaming experience into the digital space, as we have done with downloadable content. So we are confident of our ability to deliver content to gamers in an increasingly digital world. Kongregate continues to grow at a rapid pace as it leveraged our store and digital assets to drive traffic to the site. Traffic is up 58% over last year, resulting in revenue that is 65% higher than prior year. Our focus on adding highly monetizing free-to-play games, many of which are migrating from the Facebook platform, has more than doubled our virtual goods revenue, which represents the majority of total revenue for Kongregate. We also have hundreds of thousands of people utilizing our Android app, Kongregate Arcade, on a weekly basis. Our sale of downloadable content continues to provide substantial growth. Year-to-date, our revenue from downloadable content sales exceeds the full amount of downloadable content revenue that we generated all of last year. Working with Microsoft and Sony, we are now able to presell all major DLC content and deliver codes to a PowerUp Reward member's digital locker on the day of launch. We also expanded internationally, as we are now selling DLC in our French stores. The popularity of DLC at retail is growing quickly and the successful launch of these titles is becoming as important as full game physical title launches. Based on this, we're working closely with our publishing partners to launch these DLC titles with the same support that we are offering physical goods, including full marketing plans, presell incentives and go big exclusive content. A key example of this strategy is the recent launch of the Escalation pack for the Xbox 360 version of Call of Duty: Black Ops. We worked together with Microsoft and Activision to launch this game in our stores and on our website, building demand and capturing this demand through preselling the game prior to launch. On the day of launch, we delivered over 50,000 presold codes to our PowerUp Reward members at the time it became available on Xbox live. During the first week, we sold more than 200,000 codes of this DLC in our stores and online, making this our largest DLC launch of all time. We look forward to working with our publishing partners to great many successful DLC product launches this year. On GameStop.com, we saw 20% U.S. growth in the quarter, fueled in large part by increases in the sale of DLC and the growth of online advertising, which drove digital sales online to increase by 50%. We now have international sites up in France, Italy, Germany, Spain, Ireland, Australia and Canada, and our global e-commerce sales grew 22% during the quarter. During the quarter, we also launched an updated digital version of our Game Informer Magazine. As we mentioned during Investor Day, digital magazines are projected to be a large source of digital growth over the next few years. And Game Informer, already the third largest physical magazine in the nation, is also one of the largest digital magazines, with 400,000 digital paying subscribers. With that, I'll turn it over to the moderator for questions.

[Operator Instructions] We'll take our first question from Gary Balter with Credit Suisse. Seth Basham - Crédit Suisse AG: This is Seth. I just want to get your perspective on the product pipeline for the remainder of the year. And also, discuss some of the opportunities for digital attachments to some of those new products that are coming out. And then a follow-up.

Seth, I'll turn it over to Tony for that.

Yes, we see the product pipeline, after the second quarter, being very strong. Obviously, as Rob shared with you, the product pipeline in the second quarter, with those, going to be slightly weaker than what the product pipeline was last year. But as we look into the future, and we look at games, Madden, Gears of War 3, Batman, Assassin's Creed, obviously, Call of Duty: Modern Warfare 3, that recently announced. We're very, very excited about the product platform in the back half of the year. And the great news is on the digital side of that, practically every game that is coming out has digital content associated with it. And given the increase that we're seeing on downloadable content in our stores and the opportunities, not only for customers to discover that content in our store, but also to pay for it in unique ways. I should mention here that 70% of the currency that is used to purchase DLC in our stores is non-credit card. So we are tapping into a community of people who like to discover that downloadable content in our stores and also, use unique forms of currency, including our trade currency, to pay for that content. So we anticipate that we will see a strong growth in digital content not only because most of these great games are now producing digital content in association with the game, but also because people see that they can discover and pay for their downloadable content at our stores. Seth Basham - Crédit Suisse AG: Okay, great. And so, if we look beyond this year, Nintendo's announced a new console is coming, there's been some other talk out there about some new updates coming. How are you thinking about the console cycle at this point?

Well, we anticipate getting a lot more information at E3 [Electronic Entertainment Expo], on the Nintendo console, and so we don't have a lot of information that we can discuss at this point other than what we will see at E3. So we will be much more prepared to answer that question probably on the next call. J. Raines: Seth, keep in mind that when you think about digital attach, both on new consoles and also on, your first question around DLC, the used business. Customers are attaching DLC to preowned SKUs, and what we're seeing is a lot of hybrid behavior from preowned buyers as well. So as we think and we model attach rates of DLC, we've got to include our preowned business in that, because we're seeing lots of excitement around consumers who buy a preowned game and then go attach some DLC for it. So we're introducing more and more people to the online experience.

In effect, Seth, when people do buy downloadable content in our stores, we are still seeing a 50% attach rate of physical goods to that sale of DLC. So it's working in both directions. As we sell DLC and people discover in our stores, they're also using that same transaction to experience new physical goods as well.

We'll take our next question from Arvind Bhatia from Sterne Agee. Arvind Bhatia - Sterne Agee & Leach Inc.: I wanted to see if you could maybe talk about the second quarter comps a little bit more, I know you touched on the software side of things, the title lineup. Could you also maybe delve into some the other categories? Given the strength in the used business in the first quarter, how should we think about the second quarter and what kind of inventory planning do you have? Anything with hardware, accessories, et cetera? J. Raines: Rob, you want to handle part of that question?

Sure. I guess one of the other things that you can consider in the second quarter comp guidance is the fact that we had a 360 [Xbox 360] price cut. And I think the slim 360 introduced last year, during the second quarter and obviously, hardware sales are a significant component and driver of where our comp results can be. I think, as you think about the used business obviously, we're very pleased with the growth in the first quarter. We talked about revenue growth for the full-year, in terms of the overall business, and I think I've shared in the past, that if you widen the range of that revenue growth of 6% to 8% for the full-year, then you can sort of fit the various category into that. So obviously, used fits in there as well and again, we're pleased with what we did in the first quarter.

And we'll go next to Tony Wible with Janney. Anthony Wible - Janney Montgomery Scott LLC: I really appreciate what you guys are doing with the loyalty and digital strategy, but one of the parts that I'd like to get an update on is Game Informer. You did mention the digital version coming, but when will we see more integration with that asset? I mean, being the third largest magazine in the nation, would seem to lend a lot of leverage to you, and it seems like you could play a process in helping to promote and sell more of the games. And as you're possibly even looking to launch a tablet, why not have a more Game Informer integration? And lastly, can you update us on the tablet?

Tony, do you want to take that?

Sure. Well, Game Informer is a huge source of information today. In fact, I would say it is the leading source of gaming information, not only for our associates, but for our customer base as well. It's already been fully integrated to our PowerUp Rewards program. And as we've shared before, practically 2/3 of our PowerUp Rewards members actually choose to pay $15 annually in order to get the magazine. What we saw is that there was an opportunity to take that magazine and make it even more accessible, more mobile. And so, the new digital magazine that we just launched is now accessible on iPads, it's accessible on the Android operating system, it's been totally integrated, has rich assets now that are integrated with it, and it's become an even richer experience than the physical magazine. So yes, it is the third largest magazine physically we think, there's not a lot of good data on this, but we believe that 400,000 digital subscriptions, we also believe that it's one of the largest magazine that's out there. If you look at the magazine, you see that it's actually now moving where the gamers are going and it is starting to take a look at various tablets that are coming out, as well as various games that are played on those tablets. So you are going to see us, with Game Informer, continue to evolve and move to where the gamer is going. But at its heart, it really continues to be a great source of information for the core gamer. That's the way that it's always positioned, and that's the way we will continue to position it. Anthony Wible - Janney Montgomery Scott LLC: Will it have a better placement within GameStop.com? Because, right now, I know you guys started to put the scores in there. But outside of that, it seems like Game Informer operates still kind of separately from GameStop.com.

Well, we definitely want to make sure that Game Informer always has an independent view and is able to provide a very independent point of view on all of the games. So part of that detachment is a real detachment, because we want to give them 100% editorial objectivity. Now that being said, you are beginning to see us move some of their content into GameStop.com, and we obviously believe that, that's great content. And so you will see us accelerate that throughout the year. So you will begin to see more Game Informer content, not only written content, but also the rich media content that they have, begin to come into GameStop.com in a much stronger way. J. Raines: Tony, this is Paul. I mean, it may seem that it's not integrated, and I realize that there's lots of work the team is doing around that. And by the way, if you haven't gotten your new digital GI [Game Informer], please take a look at it. It's really interesting, we just reviewed it a couple of weeks ago. It's got unique content. But make no mistake, digital GI and GI is tightly integrated with the PowerUp Rewards program. It's no accident that 60% to 70% of our PowerUp Rewards members are paid members. That's because it's a tightly integrated strategy between Game Informer, the preowned business and the in-store marketing. And I think -- well that's one of the things that makes us such a difficult business model for others to imitate. Because all of our activity around Game Informer, the preowned business and the in-store experience with PowerUp, it's all very tightly integrated in creating a lot of value. And the digital magazine, on its own, is creating tremendous value in terms of digital sales revenue. Anthony Wible - Janney Montgomery Scott LLC: Yes, as you go to digital, one of the benefits is you can incorporate video, which would seem to play into the wheelhouse of being able to sell video games. One of the things, I guess -- I look at GameTrailers.com, which isn't affiliated with Game Informer, but Game Informer gets the scoop on a lot of upcoming stuff. Why wouldn't we see more of kind of those, at least previews, and kind of exclusives and those video clips to show up as a way of kind of pre-selling more stuff online?

Right, and we definitely have some of that on GameInformer.com, which -- we definitely pull those in and it's more real-time that the monthly magazine that is launched, and we're integrating a lot of that. We're also integrating a lot of that into GameStop.com. J. Raines: Yes, in a world where -- what investors need to understand is, in a world where PowerUp Rewards is roughly 50% of our transactions and climbing. When you've got about 10 million people in the program. When Game Informer's integrated with 60% to 70% of those, this is -- GameStop is moving into a world where we have a direct relationship with most of the game consumers in the United States, and very shortly around all our markets. That's why we're able to launch a DLC, which was really unknown, retail sales of DLC -- two years ago, Tony and I started pitching this, it was unknown, today it's a very healthy and thriving business. The same thing will happen with streaming, casual gaming, we know how to introduce consumers to new forms of gaming.

And we'll take our next question from Mike Hickey with Janco Partners. Michael Hickey - Janco Partners, Inc.: Congratulations on 10 million PowerUp Reward members, that's phenomenal. I remember last year, I think, Paul, you were just trying to kickstart this thing and get it into the holiday period. And so thinking about that, this year with 10 million plus and growing, and you went over your holiday slate and definitely it looks strong. I was at your store yesterday and a lot of compelling content coming out of the holiday period. And so, I'm curious, and you shared with us historically, kind of the user -- the elevated user activity that you see from PowerUp Rewards members. But, I'm curious if you're seeing anything actively in pre-orders of some of the more compelling games coming out of the holiday period. And then have a follow-up. J. Raines: Mike, I think you're right on. Thank you for recognizing what's happened with PowerUp. I think it's been one of those strategic initiatives that we've invested heavily and that has really paid off. I think of a couple of things on spend that, maybe are new data points. First is the game library, which we've quoted to you off and on. And if you have a game library, you know what a cool feature it is. The game library now has over 100 million trackable games, and if you're receiving marketing from us, you know that it's specific to your game library, your buying habits. We know that our average PowerUp Rewards member spend more than 3x what the average nonmember spends. We also know that our members visit GameStop with far more frequently. Tony pointed out, the reservation process for Escalation, for us, was a tremendous learning. Tony, what did you say, how many reserves?

We had over 50,000 reserves that -- and those are delivered. Those are actually not reserves, they're actually presells of the games. The customers pay us full value for those games and then we literally send those to a digital locker within the PowerUpRewards.com website. And so they are delivered in real-time as the game comes online to those members that presold. J. Raines: So if you fast forward to your comment about holiday, you can imagine how hard our merchandising team is pitching publishers on preselling DLC with title. It has implications, if we grow that business it has implications for capital, for the size of our stores, for how much volume we can push through an existing store. It's really a very efficient model and it fits right with our ecosystem, because the trade currency is also applied to a digital product just like it is a physical product.

Like Seth's question earlier on the downloadable content that'll be associated with the new games. Think of the fact that we have literally over 100 million games. We know what people own. It's very easy for us to serve up the digital offering now. And then, we can have them presell and then literally serve it up to them, the time and the day that it is launched. We just make it very, very convenient and they have all kinds of forms of currency to pay for it. Michael Hickey - Janco Partners, Inc.: The second question, and Tony, I know you went into this a bit. But with the integration of Spawn Labs and Impulse, and certainly with the phenomenal success of DLC and working with publishers. I'm just curious if you could give us a little bit more granularity on how publishers viewed your acquisitions into digital, and maybe how specifically, you're creating partnerships with them in these new assets.

Absolutely. Well, as we talk to the publishers, and I think I made this clear at Investor Day, we really moved forward with a physical-goods-game-first mentality. So we are working in conjunction with our existing business today and all three of those areas you mentioned. Both DLC, with the acquisition of Spawn, and with the acquisition of Impulse. So in all of those areas, the publishers see it as a very easy close-end extension for GameStop. And they're excited because, like I told them, basically, we are creating the channel for you to get to the customer, where the customer is at. And you're creating these great games, we're creating the channel for you to get to these customers, PowerUp Rewards tells us exactly what they're playing and what their desires are. We're getting much more sophisticated in how we profile the consumers, so that we're getting to be much better at predicting demand and how we can target these consumers. And so, taking all of those components together, the publisher really believes that we are introducing them to a whole new stream of revenue. And so I think they're very excited about that. They know that we create markets, and they see that we create markets for their new physical product. Now as we move into these other areas, they're seeing how we can create a new marketplace for all of these digital assets as well. So I would say that while there are still questions as to how we are going to fully implement this, and that's why we're doing two beta this year on Spawn, Impulse is more straightforward. We know how we're going to implement that. But while there are still questions that we need to answer for them, I would say that based on our discussions with both the top platform holders and the top publishers, that they are very positive about the fact that we are bringing new revenues streams to the industry. J. Raines: And Mike, you may be asking why would -- or investors may be asking, why would incumbent platform and publishers -- I think fundamentally, it's because when GameStop arrives pitching an idea like this, we're believers in the console business. We want to expand the console business and bring it to a broader audience. Just like DLC, when we showed up on DLC, we didn't have a lot of authority in that space. Fast-forward two years today, publishers know this is healthy for the console business. The same thing will happen with streaming.

And we'll go next to Sean McGowan with Needham & Company. Sean McGowan - Needham & Company, LLC: First question on the buyback. It looks from the average price that the buyback was done kind of early in the quarter. Can you offer any comments on sensitivity to the stock price? Or can we continue to look forward to seeing further buybacks?

Rob?

We did execute most of the buyback earlier in the quarter. I think what you can expect in the future is that, as you look at the cash flow characteristics of GameStop over the course of the year, and as you look back now at our buyback history from 2010. We came out of the gate strong in 2010, using our year end cash to buy in January of '10 and then in the first quarter of 2010. We have buyback activity through the rest of the quarters in 2010 and again, kicked it back up in January of '11. And we had strong buyback activity in the first quarter of 2011. You can expect that same sort of pattern as it's somewhat based upon what our cash flow is. And obviously, that's highest when you come at -- through the holiday season. But we expect to be somewhat active in the market throughout the rest of the year. Sean McGowan - Needham & Company, LLC: Okay. And on the store opening, would we expect some of the openings that will offset the closings in the first quarter to come? Maybe more in the third quarter? J. Raines: Sean, this is Paul. As I mentioned in my remarks, seasonally, we tend to close more stores in the first quarter. In fact, if you go and look at our leases, a large majority, the vast majority of our leases expire between November 1 and January 31, roughly. So you're going to see more closures in the first quarter. We're still targeting a net zero square footage. And as a reminder to investors, we see that as part of our disciplined capital allocation. Rob talked about buyback and about our return on invested capital. Part of that is the rational development of square footage and transfers of stores using our PowerUp data to make sure that stores we open are -- or stores that we close are transferring most of the customer contribution over two existing stores. So I think you can expect us to continue targeting the net zero footage in the U.S, and internationally we'll be opportunistic country by country. Sean McGowan - Needham & Company, LLC: I was just wondering about the timing during the year. J. Raines: I think you'll see more store openings during over the course of the year. More store closings in the first quarter.

Our next question comes from Bill Armstrong with CL King & Associates. William Armstrong - CL King & Associates, Inc: The gross margin in the other category was exceptionally strong in the first quarter. I was wondering if you could give us a little more color on that.

There was a -- this is Rob. There's a slight increase from last year, and there was an increase from the fourth quarter. And principally it relates to our digital businesses, including DLC, and as well as our Game Informer magazine. William Armstrong - CL King & Associates, Inc: So those are above average -- deliver above average margin?

Well, the blend of the digital businesses, as we've kind of talked about before, there's a lot going on in digital with the various sources of revenue that we earn. We've talked about the digital businesses. You can think about them in terms of a software like, a new software like margin overall, based upon consumer purchases of digital products. William Armstrong - CL King & Associates, Inc: Okay, got it. The $26 million of strategic initiative spend that you've got laid out for the year. How much of that was in the first quarter? I think you mentioned that there was some that hit the SG&A line.

In the first quarter, the impact was approximately $0.03. So less than the impact in the second quarter. William Armstrong - CL King & Associates, Inc: Okay, got it. International, I think you said in your opening remarks that you had five net openings. What were the numbers of openings and closings internationally?

We opened 25 stores and closed 20. William Armstrong - CL King & Associates, Inc: Okay, and then finally, you mentioned Madden as a big title coming up. What's the risk there in case the NFL lockout actually delays or even cancels the season?

And that's really hard to predict at this point. I mean, so far, we're obviously looking at reservations and so forth. But it's very, very hard for me to predict what the impact is going to be on the actual game. I also think it could be a mixed impact, but it's very hard to predict it. J. Raines: Already, I think it has slipped, for several reasons. The FDA is taking into account a late settlement and so that, instead of the 1st of August, they now have a scheduled for the end.

For the end, yes. It's going to be -- it was really hard to predict what the impact would be. J. Raines: We're hoping for a good settlement. William Armstrong - CL King & Associates, Inc: Yes. So are you seeing reservations kind of lagging? What previous Madden titles have done up to this point in the year? J. Raines: We don't really comment on reservations on specific titles.

We'll go next to Anthony Chukumba with BB&T Capital Markets. Anthony Chukumba - BB&T Capital Markets: Wanted to dive in a little bit on the used business. You saw some pretty significant acceleration from Q4. But I was very impressed by the fact that the year-over-year gross margin was basically in line. So it wasn't like you were getting extremely promotional to drive that business. So I guess, I was just wondering if you can give us just a little more color in terms of what you did that was so successful in the used business in Q1. J. Raines: Anthony, I think if you recall from the Investor Day, we came out of holiday very focused on repositioning that preowned business. And I would say there's a few planks around the strategy that team has. The first of those is really spending some time with consumers and with our stores understanding the in-store merchandising. So if you go to our stores today, you will see we've reallocated the space in a way that features of some of our top selling preowned games, we've done some in-store visuals. We also are showing our best pricing. If you recall, we pointed out at Investor Day, we have typically not spent a lot of time or resources focusing on our pricing. But we know that PowerUp Rewards Pro members get 10% off preowned games and they get a 10% trade credit. We're doing some things around signing that internally. So you see some in-store components. You also -- we've really used PowerUp Rewards and the game library to do some very specific micro-marketing of specific titles to specific consumers. So we go to your game library and we see that you are an enthusiast of first-person shooters, so we might be marketing to you with some in-store promotion that -- or some online promotion that gives you a coupon that you bring into store. Much of that marketing is stealthy, competitors don't see it. Consumers receive it individually and it's not very margin diluting. So I would say the second plank is, the PowerUp Rewards program has really given us value around preowned. And then the last thing I would say is that, we're doing a lot to drive attach of preowned to some of these digital properties. Tony mentioned the Escalation DLC and some of the Modern Warfare 2 DLC. Much of that DLC is going out attached to a preowned item as well as a new item. So...

Clearly, what we see as DLC comes out, it reinvigorates demand for the game that it's attached to, whether that's a new copy or used copy. So that's another great benefit of DLC in retail. J. Raines: The pre owned business, Anthony, as most investors who follow us know, is a very task-intensive business in the store. It's a very sophisticated, complex business and it requires significant investment and alignment if you want to be in it. We think we've got some pretty significant moats around that business, but I would say, with the push we've made now around PowerUp marketing, it's an even more complex model for others to copy.

We have time for one more question. We'll take our final question from Mark-Andre Saucier-Nadeau with Goldman Sachs. Mark-Andre Saucier-Nadeau: Most of my questions been answered, but I have two quick ones for you. First of all, on the retention of customers from store closures using PowerUp. I was wondering if you -- given the sales lift you're seeing in the stores that remain, do you have a sense of the retention of customers that actually are not PowerUp members, if the spike is higher than just retaining the PowerUp guys you're tracking. And then the second part of my question would be on 3DS, I'm wondering how is that doing versus expectations? And also, if you could talk to some of the strength that we've seen in other handheld platforms recently, that will be great. J. Raines: Mark, I'll start with the retention and Tony will probably handle the 3DS question. I think, without giving away too many competitive things we wouldn't want to disclose, I think the story on retention is that the program has been more effective than we thought it would be. We've learned quite a few things around consumers. For example, given GameStop's distributed footprint, consumers shop us in a lot more locations than we thought. So we've had to learn how to manage through that and provide incentives as we transfer sales. The other thing we've learned about consumers is, they're far more hybrid than we thought. In other words they shop us online at GameStop.com. They buy digital products from us. They might play on Kongregate and they might shop several stores. So we've had to manage that, but we've been very successful at the retention and we're -- really all I want to say, numbers wise, is that we are well within the guidelines we gave at Investor Day. As far as retaining nonconsumers, we've spent some amount of time on that, but candidly I would tell you the real focus is converting nonmembers into members of PowerUp Rewards. In our ideal world, we would have very few customers who are not members of PowerUp. So as we continue to drive the program, you'll see us have more and more membership and we'll retain them as well as we do anyone else. Tony you want to talk about 3Ds?

Sure, on 3DS, Mark-Andre, we're very excited about 3DS when it launched. Obviously, one of our highest market shares we've ever had on a Nintendo launch, 45%. We were excited about our market share. I think there has been reports that the numbers are lagging from what the expectations were for the U.S. and I think our results would be in line with that in Q2. We do expect that we will fall slightly short of what we expected. So we were excited to launch, but in Q2, we do believe that it will slightly lag our expectations. Mark-Andre Saucier-Nadeau: Got it. And just this trend in the other handheld platform, like we've seen PSP pick up a little bit, and just the regular DS. Like if you look at trends recently, they're a little stronger than expected. I'm wondering if you could comment on that?

I think that with the DS announcement, it did -- I think it raised awareness of that platform, yet again. And with the price point obviously, there's a large disparity between the price point of the 3DS and the DSi for instance, and so I think it did raise awareness in that. We are seeing a little bit of uptick like you said on PSP. But it hasn't been a significant increase in there. So we anticipate that 3DS is going to continue to be the hottest handheld platform for at least for the second quarter. J. Raines: And one point I'd like to remake is one that Paul made, and that is that we already know over 50% of the transactions that go through our registers, we know the consumer who purchased them to our PowerUp Rewards member. I would argue that, that may be the highest percentage of any retailer outside of a club, like a Costco or Sam's Club, where you have to be a member in the United States. And then, we've done that with a launch that only started really nationwide last October. So if you can see where we're going here, and wouldn't be a surprise that in six, seven, eight, nine months, we know 75% to 80% of the transactions that go through our register. We know who bought that. And that's tremendous power. In all of our marketing efforts, driving our used business, driving our DLC business, and then everything that we do. So thank you for attending today's conference and your interest in GameStop's future. As you can see, we're very excited about the future of GameStop and our expansion into all forms of gaming. And we are executing to this vision and to this plan. Thank you very much.

This does conclude today's conference. We thank you for your participation.