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Retailer predicts 30% drop in earnings after disappointing sales of computer games

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Retailer GAME Digital became an early Christmas casualty on the UK high street as it warned over profits after being hit by weaker-than-expected sales of computer games.

The chain said sales of old-format games for PlayStation 3 and Xbox 360 consoles plunged by 56.7% in the 21 weeks to December 19.

Sales of games for Xbox One and PlayStation 4 consoles rose by a fifth, but this failed to offset the steep drop for the old format games.

It also saw UK sales of games consoles drop 28% to £98.7m, although it said margins on these sales are low and have little impact on overall trading profits.

GAME Digital said that while the next few days will be its busiest in the run-up to Christmas, the “recent trends and disappointing sales since the start of school Christmas holidays”, are set to see half-year underlying earnings fall to around £30m – a drop of 30% on a year earlier.

Chief executive Martyn Gibbs 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 switch over has only become apparent in December, which has been compounded by lower year-on-year high street and shopping centre footfall.”

Shares in GAME Digital, which floated in June last year, plunged more than 40% at one stage after the profit warning.

This came despite assurances from the group that it is still hoping for a stronger second half of its financial year, with sales of software for Xbox One and PlayStation 4 expected to pick up, helped as well by sales of second-hand mobile phones and tablets.

Retail experts at Liberum said the first-half sales warning comes at the “most critical time of year” for GAME.

“While a decline in old format sales was expected, the scale has surprised the company while the importance of Christmas trading has hugely magnified the issue,” they added.

GAME said overall sales by gross transaction value dropped 11.4% in the UK over the 12- week period, despite strong Black Friday trading.

A better performance in Spain, where sales rose 8.1%, helped limit the overall drop in total group sales to 6.7%.

It marks the latest knock to the group in a chequered history that saw Game rescued from bankruptcy in 2012.

Then called Game Group, the firm was one of the high-profile high street collapses following the financial crisis.

Administrators closed 277 of its 610 stores and it was then bought out of administration in April 2012 by OpCapita, an investment firm working for Elliott Advisors.

Elliott, which has retained a significant stake in the business, has since revamped and refocused the chain.

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