Well Damn. GameStop What the hell just happened that looked like an amazing report? We gotta go through it because wait a minute. Is it actually that amazing? Is Kevin here to ruin the day again? No. I don't want to ruin the day I Want to tell you the truth? In fact I want to play the By the Dip song again because after all the last time GameStop went to the moon on my birthday January 2021 we had a good party.

The problem is then GameStop was no longer available for buying on Robin Hood and the party was over. But now we have the fourth quarter earnings report for GameStop and it's worth diving into the actual report to see what's going on because there are some interesting things going on that you should be aware of if you're a GameStop a shareholder now. I Wasn't expecting to make this video until tomorrow morning, but because this is breaking news I figure hey, let's bring it to you as soon as possible. So there are a few things that I think are quite interesting in this earnings report Beyond just the headlines which are okay.

hey, we beat on revenues. we beat on adjusted EPS That's fantastic. That's wonderful. Let's actually go Nitty Gritty though and maybe try to understand.

Is there something more to this and I think the answer to that unfortunately is yes. So what do we got? Okay, well the first thing that we need to know is that all of a sudden we saw the cost of sales section jump almost 600 basis points. Actually more like 650 basis points. Basically, all of a sudden, their margin was Greater by about 6.5 percent.

Now that seems phenomenal right when I First initially wrote this down I'm like, hmm, wow, GameStop is really cutting their costs on their costs of sales. Now that's fantastic. One way you could do that is potentially having fewer employees selling a similar amount of goods technically sales at the company both year over year and quarter over quarter compared or negative, right? So net sales are actually shrinking. It's certainly not a Growth Company in terms of Revenue But all of a sudden their cost of sales? Decline And that made me think, well, fantastic.

Maybe they're becoming more efficient, but unfortunately, that's not exactly the only reason this margin looks so positive. and I'll talk about that in a moment now. SG A did fall substantially. I Mean we have almost an 80 million dollar drop in sales and general administrative expenses here.

So a lot of that white collar office were cutting to try to run the business with fewer people. Okay, that makes sense. That's how they ended up getting a positive EPS when the expectation on Wall Street was that they were going to lose more money. So the fact that we had a positive earnings per share set here of 16 cents? Absolutely phenomenal.

So what's the problem then? Kevin After all the CEO brags about how much cash they have, look at this: cash, cash equivalents and marketable securities 1.39 billion dollars at the close of the quarter. In addition to that, they basically only have a 40 million dollar loan and they're in their earnings call. What did they say? Well, in the earnings call, they bragged about how they pretty much have no debt. so they're kind of dangling this carrot of hey, we basically got about 1.4 billion dollars in cash and pretty much no debt.

That sounds fantastic, right? Yes, but it's not exactly what the statements actually show now. I I'm not trying to do this to be the bearer of bad news I Don't have a horse in this race I'm like I want to be part of the crowd I want to buy some calls tomorrow I Want to buy some of the stock. Uh, but after looking at the statements, some of my enthusiasm is going away and I'm not short in the stock I Got no horse in this race again. But let's look at this.

Let's look at this. So if we jump on over here to the cash that they have, the first thing we could do is it's split up a little at the bottom of this PDF You can see cash right now is 11 39 million right? Cash and cash equiv 11.39 mil. Okay, perfect. let's add that together with marketable Securities and what do we get? We'll hold on with the receivables.

We'll come back to receivables in just a moment. Which is right here. Add in the 251 and you get that about One Three nine, One billion dollars to see I was talking about. That's fantastic I Want to have 1.3 billion dollars sitting around? Oh, but wait a minute.

They have bills to pay. They have a lot of bills to pay. But because they're just bills and technically not debt, The CEO is bragging about having low debt while having bills sitting on his desk of 531 million dollars and other accrued and current liabilities of 602 million dollars. So all of a sudden, no debt turned into 1.133 billion dollars of debt.

Now I'm going to assume all of their receivables get paid. Okay, so we're gonna add in the 153 million receivables so we'll take all their cash at 13.91. minus their payables 531 602. Add the receivables in and this is how much cash they really actually have.

410 million dollars? Okay, well, that's actually pretty decent. It's not 1.4 billion dollars and it doesn't consider that they owe about 40 billion dollars on their coveted loan. They paid that down from about 46.2 That's okay. so we've got about 410 and free cash.

Pay off the covet loan at the French government, which you don't have to. That's about 370 million free cash. Okay, that's actually good I will give them that. That is good.

It's click bait to say it's 1.4 billion dollars, but it's still good that they actually have somewhere around 400 million dollars in cash around. That's that is good, especially since they're not burning cash right now. but they are burning something else and I want to show you what they're burning because it's actually really important for the future of the business to understand what this next thing is that they're burning. But I do as usual because this is what I do.

This is how I make a living I Have to pitch the programs on building your wealth link down below with an expiring coupon code tomorrow. That's because I go through deep dive fundamentals like this almost every single day day in our course member live streams and we've got some amazing special live streams for people looking to increase their income protect themselves liability wise Insurance wise. If people got tax questions, any kind of questions you have I do my best to give you perspective. obviously not from the point of view of personalized advice, but to get you started in the right direction of where to get the best answers and the best questions to ask your own.

CPAs and lawyers and get started the right way. So check out those programs on building your wealth link down below whether it's stocks and psychology of money the most popular or the most popular bundle the zero to millionaire real estate course which often gets bundled with this or the next one which is the elite Hustlers University All right, so what's the next thing that they're burning? Well, that's actually right here. So what do we got here? See this section right here. This is the cash flow statement.

Okay, now this is very complicated. so I'm just going to keep it as simple as possible. see this section right here: Merchandise Inventories Okay, you usually when a company is spending money to build up inventories, they have a negative merchandise, inventory, sector, or line item. Anytime you hear cash flow, you want to think about what did you do with cash.

If you spent money, the number is negative. If you received money, the number is positive. so let's compare for a moment. Go to end face a growing company.

What do we have over here for inventory? Well, inventory is very clear in this green section right here. For the three months ended in these three different quarters and the two years ended. All of the numbers right here. All of them are negative under the inventory line, right? That's normal because they're growing their inventory, Go to Walmart What do you see under inventory? Negative Inventory on the cash flow statement.

Negative inventory means you are bringing in more inventory than you sold When inventory on the cash flow statement is positive like it is here and like it was last year, it makes you have to ask yourself, did they either prop up their inventories too much during Covid which they say they did In Fairness, they say they did and they're going through that inventory or are they liquidating because they realize certain segments of their inventory won't be profitable much longer. And so while they're selling that inventory, potentially liquidating it, reducing the prices, Getting it sold. Basically, get it sold, Get it sold, get it sold, and then not rebuying It would be another explanation for having a positive merchandise inventory. You have positive merchandise inventory when you sell more Goods than you receive.

Now let me ask you this: If you were a business that was selling Pokemon cup Collectibles and you spent a hundred dollars on Pokemon cup Collectibles and you made two hundred dollars, Well, you want to keep doing that because you're probably a profitable business. Right after your cost, you probably have some money left over. But if it's not profitable to buy these, what do you stop doing? Well, You sell what you have and you buy less That appears to be What's Happening Here Now that makes me a little bit nervous, because at some point in the future, if they want to continue operating their business, they're going to have to go back to having a negative cash flow segment in inventory. Now, remember when I told you, it was interesting how they managed to get earnings per share up so high, partly because their costs of sales plummeted.

In other words, they had this greater margin. Well, think about it folks. why would your cost of sales decline? Well, what if you didn't buy any more stuff? Just to be extreme, if you just stop buying stuff all of a sudden, it looks like your margin is really, really good compared to a prior period. But at some point, you're gonna have to keep buying stuff to stay in business, right? Yeah, and look, let's be fair.

they have a bunch of assets still, uh, in inventory. So In Fairness, they've got 682 million dollars worth of junk that they could still sell people right here. So it seems like they got plenty of stuff that's down from 915 million dollars. So that's fantastic.

But it's important to know that at some point, if the company goes back to actually expanding the assets that they want to hold, then what's going to end up happening? Well, they're going to have to take a charge for against cost of goods sold for actually buying the goods they want to sell. That's the nature of cogs after all. costs of goods sold, right? So to me, it seems like there's some liquidating going on and that makes sense because a maybe they over stocked in the pandemic, but it's also potentially a red flag that maybe they're starting to realize we need to get rid of the unprofitable stuff because in Covid in 2020, their inventory levels were actually sitting right here at 859 million. Oops, there we go.

859 mil. In 2021, they were sitting at 602 mil. Now, this could be explained by the shortages, but they're suggesting they built up inventory so high they don't need to keep building up inventory. But wait a minute before Covet's supply chain issues really hit.

Their inventory was around that eight 900 level, which actually kind of implies that they don't have a lot more bloated inventory that they have to sell through, because if things were like they used to be, you wouldn't be saying that you would be trying to keep inventory levels propped up. So in my opinion, this is a little bit of a red flag that they're liquidating the stuff they don't want. which in my opinion is probably where they're actually starting to lose sales. And that is in software.

which makes sense. People can now digitally download products. they're still growing in hardware and collectibles, and they do keep bragging about Collectibles In Fairness. Now, before we talk about that, I will jump over to 2019.

Okay, because remember, they're bragging about inventories still being high right now because of Covet. Their inventories right now are like 692 million dollars. We want to know what they were in 2019 twice that merchandise inventories 1250. So in other words, 1.25 billion dollars of merchandise inventories.

Look at this page here. This is the front page. They talk about initiating Cost Cuts and then completing the majority of their implementations and upgrades related to the company's infrastructure systems, shipping capabilities, and online and mobile platforms. Okay, hold that thought.

So they're telling you they completed the implementation of all of these upgrades, right? Hold that thought. And then they talk about increasing their Collectibles category, which is where the company continues to prioritize long-term growth. Well, they took Collectibles from 13.7 last year to 16.3 percent of their total revenues. So they're prioritizing growing this one of the smallest segments of the business.

You could see that right over here. This is where 55 percent of their sales come from Hardware like pre-owned stuffed stuff software 30 they're trying to pump up Collectibles This is for the 13 weeks ended and the numbers that I was showing you was actually were actually for the year ended. So in other words, even though they're out, let's say that's even worse. They're trying to prioritize Collectibles which they had 16.3 percent of revenues coming from Collectibles for the year, but that actually decelerated to only 14.1 percent for the quarter.

But that's where they're trying to prioritize. But wait a minute. What about all of this? Uh, Capital Improvement that they just talked about? They talked about like new apps and system improvements uh, and other improvements for who knows what, right? Capital Improvements Okay, well, their cash flow statement tells you they spent 11.6 million dollars in the quarter on Capital expenditures. Well, the company has 2954 stores, so if you divide 11.6 million dollars by 2954, you spent less than four thousand dollars in Capex in the fourth quarter.

If you average out their 59 point or 55.9 million dollars of capex for the year, they spent less than five thousand dollars on average per quarter on each of their 2954 stores. Now, look, call me crazy I Know they lease a lot of their properties, but that seems like a very low amount of Capex that they're actually investing into their stores. That makes me a little bit nervous that the company is trying to inflect towards Collectibles only because they see the writing on the wall that the pre-owns and the other stuff is going away. And so they're cutting costs.

They're cutting employees. they're not actually investing in their stores anymore. And in the meantime, the idea is let's sell some Collectibles which I'm all for that I Got this Needler which you can learn more about in the description down below I Got me an affiliate link down there paid for of course along with another affiliate link for life insurance that you can get in as little as five minutes. Metkevin.com life, and of course 12 free stocks you can get with.

Weeble Maybe you can even get yourself a Gme stock. All you have to do is go to Metcaven.com Free now In Fairness I Love me the idea that Gme is up 48 and after hours now I Have no idea why that turned all weird and pink but I See 48 in after hours and that looks awesome. So what do I think about? GameStop Well let me give you a reasonable bottom line here: I Think it's fantastic that the company is positive on EPS That's great and you don't even have to mention the fact that they lost 34 million dollars on digital assets I was just on the page and then it jumped away I Guess we're having Tech difficulties. So there we go.

34 million dollars lost on digital assets? Ouchie Wow. Chi But anyway, ignoring that, the company is giving us a little bit of Click bait. So bottom bottom line: we got some click bait on cash position. Now why does clickbait on cash position matter? Well, because in the future when they increase their inventory such as for Collectibles what happens? Oops now EPS goes down, margin goes down, and cash flow goes down, and cash position potentially goes down.

oops spelled that wrong. Anyway, potentially goes down, maybe goes down. uh, unless of course they sell profitable Collectibles So that's an idea. Some click bait there on the cache.

but I will say around 410 million dollars of cash is actually pretty decent. Pretty decent. a lot of stores I Worry that the stores would be getting run down with how little Capex is going into them I Worry about negative revenues because you have a company that's not really making money right? and I will say even if we annualized this right here, this 16 cents 16 cents times four would put us at about 64 cents. That means in after hours Right now at 64 cents, you're paying about 41 times in a price to earnings ratio for this company.

So you're paying 41x for a company with negative growth that also seems to be cannibalizing its inventory below levels that it's ever had before. So I Do think there are some red flags? I'm very, very happy about the stock going up because I think that's wonderful for for everybody who's exposed to it from an invest the long-term Investor's point of view. For me, this would probably just be something to maybe sort of meme. Euphoria Trade I Do think the numbers are probably better than than some other companies that we've seen.

In fact, in in their earnings call I Thought this was really interesting in their earnings call they say we want stockholders to judge our results instead of our words I Kind of felt like that was a slam on other potential Momentum stocks, but who knows, So those are my thoughts. Uh, keep in mind they also had about 21.4 million dollars in stock based compensation for the last quarter that they added back in. I Thought it was less than that, that's under the ebit. We don't have to talk so much about that.

They did say they're creating more of an incentive program uh, for their um for their store owners so that way, or their store operators so that way, they're incentivized to continue to sell products. So anyway, check out the links down below and we'll see in the next one. Thanks guys! Bye keep in mind if the company now. keep in mind if the company goes low on cash because they start replenishing their inventory, they're gonna have to raise money from somewhere.

That means either taking on debt, taking on debt in the form of convertible bonds which are dilutive to shareholders, or selling stock. So is it possible that today on March 21st, 2023 GameStop is purposefully engineering these earnings to meme stock rally GameStop once again so they can dump on normies in a few months when they realize they have to restock inventory while at the same time? Yes, the stock has pumped? Let's dump. Yes.