• Dec. 9, 2016, 7:32 am

Game shares fall 40% after profit warning

Powered by Guardian.co.ukThis article titled “Game shares fall 40% after profit warning” was written by Sean Farrell and Sarah Butler, for The Guardian on Wednesday 23rd December 2015 12.04 UTC

Game Digital shares have dived nearly 40% as the retailer warned that profit would fall sharply after worse than expected sales of games in the run-up to Christmas.

The seller of video games and consoles said UK sales for the 21 weeks to 19 December fell 11.4% to £353.4m as gamers failed to buy enough games for new consoles to make up for a steep fall in demand for older formats.

The tricky trading conditions squeezed profit margins and Game warned that underlying profits would fall 30% to £30m for the six months to 23 January. It said the busiest trading days were yet to come, but “recent trends and disappointing sales since the start of school Christmas holidays” meant it would not meet profit expectations.

The unscheduled statement is Game’s second profit warning in a year. In January, the retailer’s shares took a battering after it admitted that heavy price competition last Christmas had hit profits.

Game said its latest difficulties were part of a slump in the wider video game market in which sales were down 13.5%.

However, independent retail analyst Nick Bubb said he was “staggered” by Game’s profit warning after John Lewis boasted of strong sales of computer games earlier this week. “We had just begun to wonder if Game Digital might be a good recovery stock,” he said.

The department store said gaming and console sales were up 180% in the week to 19 December, picking them out as one of its Christmas bestsellers.

Game’s shares fell nearly 39% to 126p on Wednesday, well below the 200p at which Game floated in June 2014.

Game said trading during the Black Friday discount day in late November had been better than the general trend but the company has suffered, as warm weather and security fears have kept shoppers away from the high street.

Many families are also leaving their shopping later than usual, as they take a four-day break before Christmas Day on Friday.

 

Martyn Gibbs, Game’s chief executive, said: “The trading conditions in the UK video games market have been challenging. The switch over from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market. The extent of the impact of this switchover has only become apparent in December which has been compounded by lower year-on-year high street and shopping centre footfall.”

Game said a 20% rise in sales of games for the Xbox One and PlayStation 4 had not offset a 57% slump in sales of older Xbox 360 and PlayStation 3 games.

Game said it thought margins would be higher in the second half than a year earlier as sales of games for new consoles increase and the impact of falling old format sales reduces.

Analysts at the stockbroker Liberum cut their forecast for full-year profit by 60% and said they expected Game to weigh up whether to maintain its dividend between now and the announcement of first-half results in March.

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