Why GameStop's gross profit rose 22% as sales fell 19%

GameStop sold $182.0 million less in its second quarter than a year earlier and made $61.9 million more gross profit.

Net sales were $790.2 million against $972.2 million, down 18.7%. Gross profit was $345.0 million against $283.1 million, up 21.9%. Gross margin went from 29.1% to 43.7%.

The company calls the $160.2 million operating income “the highest second quarter operating income in GameStop’s history”. It came on the lowest second-quarter sales of the two years shown.

The mix flipped

This quarter the company started reporting sales in three categories and recast the prior year to match. The recast is what makes the answer visible.

Collectibles are now 45.1% of net sales. A year ago they were 23.4% and video games were 50.9%.

The company attributes the sales decline to “the prior-year launch of Nintendo Switch 2, planned store closures, and the divestiture of the Company’s France operations”. A console launch moves a great deal of revenue and very little margin; trading cards and collectibles do the opposite. Losing the first and growing the second is how $182 million of lost sales becomes $61.9 million of extra gross profit.

Q2 2026    Q2 2025     change
Net sales                   790.2      972.2     -18.7%
Cost of sales               445.2      689.1     -35.4%
Gross profit                345.0      283.1     +21.9%
gross margin              43.7%      29.1%   +14.5pp
SG&A                        187.1      218.8     -14.5%
Asset impairments            (2.3)      (2.1)
Operating income            160.2       66.4    +141.3%
operating margin          20.3%       6.8%

Selling, general and administrative expenses also fell 14.5%.

Most of the profit did not come from the stores

Operating income was $160.2 million. Income before income taxes was $420.2 million.

Operating income                                 160.2
Interest income, net                             +77.1
Gain on derivative asset, net                   +166.3
Unrealized gain on equity investment             +72.1
Other income, net                                +19.5
Loss on digital assets and related receivables   -75.0
+260.0
Income before income taxes                       420.2

$260.0 million of the $420.2 million — 61.9% — came from lines that have nothing to do with selling games. Net income was $298.7 million against $168.6 million.

The company’s own adjusted figure strips most of this out: adjusted net income was $161.1 million against $138.3 million, and adjusted EBITDA $174.0 million against $75.7 million.

The balance sheet is not a retailer’s

Cash and cash equivalents                      4,854.3
Marketable securities                            206.0
Digital assets and related receivables           294.1
Equity investment                              4,946.9
Financial assets                              10,301.3     92.4% of assets
Merchandise inventories, net                     439.0      3.9% of assets
Property and equipment, net                       50.1
Operating lease right-of-use assets              158.9
Total assets                                  11,144.8

Merchandise inventory is 3.9% of the balance sheet. Financial assets are 92.4%.

Cash and equivalents fell to $4,854.3 million from $8,694.4 million a year earlier, a fall of 44.2%, while a $4,946.9 million equity investment appeared where there had been none.

$1.7 million on equipment, $4,386.3 million on eBay shares

The cash flow statement puts the two side by side.

Capital expenditure in the quarter was $1.7 million. Cash paid for the equity investment was $4,386.3 million — 2,580 times as much. The release says the company held approximately 43.4 million shares of eBay common stock with a fair value of about $4.9 billion at 1 August.

⚠️ Three figures about that stake do not tie to one another and the release does not bridge them: $4,386.3 million of cash paid, $4,946.9 million carried on the balance sheet, and a $72.1 million unrealized gain in the income statement. A $166.3 million gain on a derivative asset and $983.3 million of proceeds from collateral pledged for derivatives also appear in the same quarter. We have not reconciled them and this article does not attempt to.

Among the risk factors the release lists “the Company’s ability to complete its proposed acquisition of eBay”.

On the takeover itself we are reporting a claim, not a fact. In July GameStop filed a Financial Times interview with its chairman under Rule 425, in which the newspaper reports a $56bn cash-and-stock offer for eBay that eBay rejected in May. We link it as the claim we have not verified. What the filings themselves establish is the size of the stake and that a proposed acquisition exists.

The share count

Basic income per share              $0.67      $0.38
Diluted income per share            $0.51      $0.31
Basic shares                        448.8      447.4
Diluted shares                      592.6      546.5
diluted over basic                +32.0%

The diluted count is 32.0% above the basic count, so diluted earnings per share are 23.9% below basic. At the July annual meeting shareholders approved raising authorised Class A shares to 2,500,000,000.

After the quarter closed, on 3 September, the company completed privately negotiated exchanges retiring approximately $1.4 billion of its 0.00% Convertible Senior Notes due 2030 and 2032, which it says reduced total long-term debt to approximately $2.8 billion from the $4,167.8 million on this balance sheet.

What this article does not settle

• No share price reaction. The results were released on 8 September. Our licensed daily price source carries a redistribution delay that covers the first session after it, so this article prints no price. We would rather leave it out than use a number we cannot publish at the required delay.
• No consensus comparison. Analyst estimates are not filings and we do not verify them.
• The eBay takeover figure is not ours. The $56bn and the rejection come from a Financial Times article that the company filed under Rule 425. We link it as a claim under examination.
• The equity investment does not reconcile. See the warning above. Cash paid, carrying value and the recognised gain are three different numbers and the release does not bridge them.
• A record operating quarter is not the same as a growing business. Sales fell 18.7%. What improved is what the company sells, not how much of it.
• Adjusted EBITDA is company-defined, and the company says it cannot reconcile its full-year outlook to GAAP without unreasonable efforts.
• The exhibit is furnished, not filed. The quarterly report on Form 10-Q with the full notes follows separately.

Check it yourself

The three sales categories are the Schedule I table at the end of the release, headed Sales Mix. The income statement is the first table; the five lines between operating income and income before income taxes are printed there in order. The balance sheet is two tables later and the equity investment is a single line on it. The cash flow statement holds both Capital expenditures and Cash paid for equity investment.

For another company whose reported profit was mostly not its operations, see Intel’s escrowed shares. For a retailer whose category mix decided the quarter, see DICK’S, and for what a large equity stake does to an income statement, see Nvidia’s income against its cash.

Every calculation above is written out in this article’s front matter and re-checked when the site builds.

If a figure here does not match a filing, tell us and it will be corrected on the article and on the corrections log, with the date.