GameStop Corp. (NYSE:GME)

The financial performance, as measured by economic profit, demonstrates a consistent pattern of negative value creation over the observed period. While the magnitude of the economic loss has fluctuated, the company has not generated positive economic profit in any of the reported years.

Net Operating Profit After Taxes (NOPAT)

NOPAT consistently registers as a negative value throughout the period. The largest loss occurred in February 2, 2019, at -US$781,477 thousand. Subsequent years show improvement, reaching a minimum loss of -US$85,929 thousand in February 3, 2024, indicating a reduction in the scale of operating losses. However, profitability remains a significant concern.

Cost of Capital

The cost of capital exhibits a generally decreasing trend from 4.21% in February 2, 2019, to 3.11% in January 29, 2022. It then experiences a slight increase to 3.28% in February 3, 2024. This suggests a changing risk profile or adjustments in market interest rates impacting the company’s funding costs. Despite the fluctuations, the cost of capital remains relatively stable, generally between 3.11% and 4.21%.

Invested Capital

Invested capital decreased from US$2,995,218 thousand in February 2, 2019, to US$1,656,300 thousand in January 30, 2021. A subsequent increase to US$2,440,500 thousand was observed in January 29, 2022, followed by a decrease to US$1,857,700 thousand in February 3, 2024. These changes likely reflect strategic decisions regarding capital allocation, asset sales, or acquisitions.

Economic Profit

Economic profit, calculated as NOPAT less the cost of capital applied to invested capital, is consistently negative. The largest economic loss is observed in February 2, 2019, at -US$907,609 thousand. The economic loss has decreased over time, reaching -US$146,793 thousand in February 3, 2024. This reduction in economic loss correlates with the improvement in NOPAT and the fluctuations in invested capital. However, the continued negative economic profit indicates that the company is not generating returns exceeding its cost of capital.

In summary, while there is evidence of improving financial performance in terms of reduced operating losses and economic losses, the company continues to destroy economic value. The trend suggests a gradual improvement, but sustained positive economic profit remains elusive.

Net Income (Loss)

The net income (loss) showed a significant improvement over the period analyzed. Initially, the company recorded substantial losses, with the highest loss of -673,000 thousand USD in the fiscal year ending February 2, 2019. Over the subsequent years, the losses decreased considerably, falling to -215,300 thousand USD by January 30, 2021. Despite a temporary increase in losses to -381,300 thousand USD in January 29, 2022, the downward trend continued with losses reducing to -313,100 thousand USD by January 28, 2023. Notably, the fiscal year ending February 3, 2024, marked a pivotal turnaround, with the company achieving a small positive net income of 6,700 thousand USD.

Net Operating Profit After Taxes (NOPAT)

NOPAT also exhibited a trend of decreasing losses throughout the measured periods. The most significant loss of -781,477 thousand USD occurred in February 2, 2019, which subsequently improved to -355,014 thousand USD by February 1, 2020. This improvement paused temporarily in January 29, 2022, when NOPAT declined to -333,718 thousand USD after reaching a low of -85,038 thousand USD on January 30, 2021. The losses for NOPAT decreased again to -228,718 thousand USD in January 28, 2023, followed by a slight decline to -85,929 thousand USD in the most recent period ending February 3, 2024.

Overall Trends and Insights

The financial performance over the six-year span indicates a movement from deep operating and net losses toward stabilization and eventual profitability. Both net income and NOPAT figures show a marked reduction in losses, reflecting possible operational restructuring or improved market conditions. The positive net income in the most recent year suggests that the company may have effectively addressed key challenges impacting profitability. However, NOPAT remains negative, indicating ongoing operating inefficiencies or costs yet to be fully mitigated. Continued monitoring of these figures would be crucial to assess whether the trend toward profitability is sustainable.

Income tax expense (benefit)

The income tax expense experienced significant fluctuations over the examined years. Beginning with a positive tax expense of 41,700 thousand USD in early 2019, it decreased slightly to 37,600 thousand USD by early 2020. Notably, the company reported a tax benefit in 2021 and 2022, with negative values of -55,300 thousand USD and -14,100 thousand USD, respectively. This indicates that rather than paying taxes, the company recognized tax benefits or refunds during these two years. From 2023 onward, the tax expense reverted to positive figures, with 11,000 thousand USD in 2023 and a further decrease to 6,400 thousand USD in early 2024. Overall, the data points reveal a transition from tax liabilities to tax benefits and back to reduced tax expenses, reflecting potentially changing profitability, tax strategies, or accounting adjustments.

Cash operating taxes

Cash operating taxes show a highly volatile and irregular trend throughout the period. In 2019, cash operating taxes were substantially positive at 117,519 thousand USD. However, this shifted dramatically in 2020 and 2021 to large negative amounts of -11,569 thousand USD and -123,389 thousand USD, respectively, possibly indicating tax refunds or credits received in these years. The trend reversed again in 2022, with a positive cash tax outflow of 13,307 thousand USD, which slightly increased to 18,513 thousand USD in 2023, before dropping significantly to 3,462 thousand USD in early 2024. This volatility suggests considerable fluctuations in tax cash payments, perhaps influenced by changes in taxable income, tax planning, or timing differences in tax settlements.

Total Reported Debt & Leases

The total reported debt and leases demonstrate a clear downward trend over the reported periods. Beginning at approximately 1.62 billion US dollars in early 2019, the debt significantly decreases to around 1.19 billion by early 2020, continuing to decline in subsequent years, reaching approximately 603 million by early 2024. This consistent reduction indicates a strategic effort to deleverage or reduce liabilities.

Stockholders’ Equity

The stockholders’ equity shows a volatile pattern with initial declines followed by a strong recovery. Equity dropped sharply from about 1.34 billion in 2019 to 612 million in 2020, and further down to 437 million in 2021, reflecting potential losses or other negative impacts. However, a notable turnaround occurs in 2022, with equity rising dramatically to 1.6 billion and slightly decreasing to around 1.34 billion near 2024. This recovery may be indicative of improved profitability or capital restructuring efforts.

Invested Capital

Invested capital closely follows the trends observed in debt and equity, exhibiting a general decline from 3.0 billion in early 2019 to about 1.66 billion in early 2021. A significant rebound is evident in 2022, with invested capital climbing back to roughly 2.44 billion, before declining once again to approximately 1.86 billion by early 2024. This fluctuation suggests shifts in capital deployment and possibly changes in operational scale or investment strategy during these years.

The economic spread ratio demonstrates a fluctuating, yet generally improving, trend over the observed period. Initially negative, the ratio exhibits volatility before converging towards a less unfavorable position. Economic profit consistently remains negative throughout the period, though the magnitude of the loss decreases in later years.

Economic Spread Ratio

The economic spread ratio began at -30.30% in February 2019 and decreased to -22.23% in February 2020, indicating a lessening of the gap between return on invested capital and the cost of capital. A significant improvement was then observed in January 2021, with the ratio reaching -8.37%.

However, the ratio increased to -16.79% in January 2022, suggesting a reversal of the prior improvement. This was followed by a further increase to -15.01% in January 2023. The most recent period, ending February 2024, shows a notable improvement, with the ratio reaching -7.90%, representing the most favorable position observed during the analyzed timeframe.

Economic Profit & Invested Capital Relationship

Invested capital decreased from US$2,995,218 thousand in February 2019 to US$1,926,200 thousand in February 2020, and continued to decline to US$1,656,300 thousand in January 2021. It then increased to US$2,440,500 thousand in January 2022 before decreasing again to US$1,936,100 thousand in January 2023 and finally to US$1,857,700 thousand in February 2024.

Despite the fluctuations in invested capital, economic profit remained consistently negative. The magnitude of the economic loss decreased over time, from -US$907,609 thousand in February 2019 to -US$146,793 thousand in February 2024. This reduction in economic loss, coupled with the improving economic spread ratio, suggests a gradual enhancement in the efficiency of capital allocation, even though absolute profitability remains negative.

The trend in the economic spread ratio indicates a potential shift towards improved financial performance, although continued negative economic profit suggests that the company is still not generating returns exceeding its cost of capital. The convergence of these two metrics in the most recent period warrants further investigation.

The economic profit margin exhibited a fluctuating, yet generally improving, trend over the analyzed period. While consistently negative, the magnitude of the economic loss decreased from 2019 to 2024. This suggests a gradual improvement in the company’s ability to generate returns exceeding its cost of capital, although profitability remains below the required threshold.

Economic Profit Margin Trend

The economic profit margin began at -10.97% in 2019. A substantial improvement was observed in 2020, with the margin increasing to -6.63%. This positive shift was followed by a further improvement to -2.72% in 2021, representing the least negative margin within the observed timeframe. However, the margin deteriorated to -6.79% in 2022 before beginning to improve again, reaching -4.85% in 2023 and finally -2.83% in 2024. This indicates volatility, but a clear overall trend towards reduced economic loss.

Relationship to Adjusted Net Sales

Adjusted net sales decreased from US$8,277,100 thousand in 2019 to US$5,093,200 thousand in 2021, coinciding with the initial improvement in the economic profit margin. Sales then increased to US$6,033,100 thousand in 2022, but the economic profit margin worsened. Sales decreased again in 2023 and 2024 to US$5,996,800 thousand and US$5,189,500 thousand respectively, while the economic profit margin continued to improve. This suggests that changes in sales volume alone do not fully explain the fluctuations in economic profit margin; cost of capital and operational efficiency also play a significant role.

The consistent negative economic profit indicates that the company’s returns on its investments are not yet covering its cost of capital. However, the decreasing magnitude of the negative margin suggests that management initiatives are having a positive, albeit gradual, impact on improving the company’s economic profitability.

Magnitude of Economic Loss

The absolute value of economic profit decreased consistently throughout the period, moving from a loss of US$907,609 thousand in 2019 to a loss of US$146,793 thousand in 2024. This demonstrates a substantial reduction in the overall economic loss experienced by the company.