GameStop Corp. (NYSE: GME) delivered a quarter that flips the narrative on its top-line decline. Revenue fell 18.7% to $790.2 million, missing the prior year's $972.2 million, but the composition of that revenue tells a very different story. Collectibles net sales surged 57% to $356.3 million, now representing 45.1% of total net sales versus 23.4% a year ago. That shift drove gross margin to 43.7% from 29.1%, a 1460-basis-point expansion that powered record Q2 operating income of $160.2 million.
The revenue decline was largely mechanical. The prior-year quarter benefited from the launch of Nintendo Switch 2, planned store closures reduced the store base, and the divestiture of France operations removed a segment. Video game sales fell to $263.2 million from $494.6 million, and pre-owned and refurbished dropped to $170.7 million from $250.0 million. These are structural trends, not cyclical ones. GameStop is shrinking its traditional footprint while growing its collectibles business, and the margin math works in its favor.
SG&A expenses fell to $187.1 million from $218.8 million, a 14.5% decline that outpaced the revenue drop. Store-related SG&A fell to $149.9 million from $184.6 million, reflecting the smaller store base. The company is running a leaner operation, and the operating leverage is showing up in the numbers. Adjusted EBITDA more than doubled to $174.0 million from $75.7 million, and adjusted net income rose to $161.1 million ($0.27 per diluted share), matching the consensus estimate.
Management raised its full-year FY2026 Adjusted EBITDA outlook to in excess of $650 million, up from the prior outlook of in excess of $600 million provided in June. The raise is meaningful, not a token adjustment. With $339.7 million of Adjusted EBITDA already delivered in the first six months, the implied second-half run rate of roughly $310 million is achievable if collectibles momentum holds. The guidance raise signals confidence that the collectibles shift is durable, not a one-quarter anomaly.
The balance sheet remains fortress-like. Cash, cash equivalents, marketable securities, and digital assets totaled $5.4 billion, plus a $4.9 billion stake in eBay common stock. Post-quarter, GameStop retired approximately $1.4 billion of its 0.00% Convertible Senior Notes due 2030 and 2032, reducing total long-term debt to roughly $2.8 billion. The company is using its cash pile to deleverage, which reduces future dilution risk from the convertible notes.
The collectibles business is now the engine. At 45% of revenue and growing at 57% year-over-year, it is reshaping GameStop's margin profile and earnings power. The question is whether this growth rate is sustainable. Trading cards and pop-culture collectibles have shown cyclicality in the past, and the 57% comp will get harder. But for now, the trajectory is clear: GameStop is becoming a collectibles retailer that also sells video games, not the other way around.
What to watch next. The collectibles growth rate and gross margin trajectory will determine whether the raised guidance proves conservative or optimistic. The store closure program has further to run, and the France divestiture is complete, so the revenue base should stabilize. The cash pile and debt reduction provide a cushion, but the core question remains whether GameStop can sustain this earnings momentum without the tailwind of a major hardware launch cycle.