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, ranging from approximately -781.5 million to -85.9 million. The most substantial loss occurred in fiscal year 2019, with subsequent years showing a general, though uneven, improvement in this metric. The latest reported value for fiscal year 2024 indicates a further reduction in the NOPAT loss, but it remains negative.

Cost of Capital

The cost of capital exhibits a decreasing trend from 4.09% in 2019 to a low of 2.82% in 2022, before increasing slightly to 2.99% in 2024. This suggests a changing risk profile or capital structure over time, potentially reflecting shifts in market conditions or company-specific factors. The relatively stable cost of capital in the latter years indicates a degree of consistency in financing terms.

Invested Capital

Invested capital decreased from approximately 2,995.2 million in 2019 to 1,656.3 million in 2021, then increased to 2,440.5 million in 2022, and subsequently decreased again to 1,857.7 million in 2024. This fluctuation suggests active management of the capital base, potentially through asset sales, acquisitions, or changes in working capital requirements. The most recent value represents a continued downward trend in invested capital.

Economic Profit

Economic profit, calculated as NOPAT less the cost of capital applied to invested capital, consistently shows a negative value. The largest economic loss occurred in 2019 at approximately -903.8 million. The economic loss decreased in subsequent years, reaching -141.4 million in 2024. This improvement is attributable to both the reduction in NOPAT losses and the decrease in the cost of capital, although the overall economic profit remains negative. The trend indicates a narrowing of the economic loss, but not a transition to economic profit.

In summary, while there is evidence of improving financial performance in terms of reduced losses, the company has not yet achieved a level of profitability sufficient to cover its cost of capital and generate positive economic profit. The observed trends suggest ongoing efforts to optimize capital allocation and improve operational efficiency, but further improvements are necessary to achieve sustainable value creation.

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, representing the difference between return on invested capital and the cost of capital, began at -30.18% in February 2019. A substantial improvement was noted in February 2020, reaching -22.17%.

Further improvement occurred through January 2021, with the ratio declining to -8.07%. However, a reversal was observed in January 2022, increasing to -16.49%.

The ratio continued to improve in January 2023, reaching -14.71%, and further improved to -7.61% in February 2024. This indicates a narrowing gap between the company’s returns and its cost of capital over time.

Economic Profit & Invested Capital Relationship

Economic profit consistently registers as a negative value across all periods, indicating that the company’s returns are not covering its cost of capital. The magnitude of the economic loss decreased from US$903,836 thousand in February 2019 to US$141,439 thousand in February 2024.

Invested capital decreased from US$2,995,218 thousand in February 2019 to US$1,926,200 thousand in February 2020, then continued to decline to US$1,656,300 thousand in January 2021. An increase to US$2,440,500 thousand was observed in January 2022, followed by a decrease to US$1,936,100 thousand in January 2023 and a further decrease to US$1,857,700 thousand in February 2024.

The decreasing trend in invested capital, coupled with the diminishing economic loss, suggests potential efficiency gains or strategic capital allocation adjustments, though returns still fall short of the cost of capital.

Overall, while economic profit remains negative, the improving economic spread ratio and decreasing magnitude of economic loss suggest a positive trend in the company’s ability to generate returns relative to its capital costs. The fluctuations in invested capital warrant further investigation to understand their impact on overall financial performance.

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 enhancement in the company’s ability to generate returns exceeding its cost of capital, despite continued overall economic losses.

Economic Profit Margin Trend

The economic profit margin began at -10.92% in 2019. A substantial improvement was noted in 2020, with the margin increasing to -6.61%. This positive shift was followed by a further improvement to -2.63% in 2021, representing the least negative margin within the observed timeframe. However, the margin deteriorated to -6.67% in 2022 before resuming an upward trend, reaching -4.75% in 2023 and finally -2.73% in 2024. This indicates volatility but ultimately demonstrates a positive trajectory over the six-year period.

Relationship to Adjusted Net Sales

Adjusted net sales decreased from US$8,277,100 thousand in 2019 to US$6,458,300 thousand in 2020, and continued to decline to US$5,093,200 thousand in 2021. A recovery was observed in 2022, with sales increasing to US$6,033,100 thousand. Sales remained relatively stable in 2023 at US$5,996,800 thousand, before decreasing again to US$5,189,500 thousand in 2024. Despite the fluctuations in net sales, the economic profit margin improved, particularly between 2019 and 2021, suggesting that improvements in cost management or capital efficiency played a more significant role than revenue growth in the initial margin improvements.

The consistent negative economic profit indicates that the company’s returns on invested capital have not been sufficient to cover its cost of capital throughout the period. However, the decreasing magnitude of the negative economic profit margin suggests a strengthening financial performance and a narrowing gap between returns and the cost of capital. The most recent year, 2024, shows the smallest economic loss, indicating a continued positive trend.