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Game Digital issues profit warning

Wed 23 Dec 2015

High street video game chain Game Digital has put out a profit warning with listed statistics of rising operating costs and falling sales and margins.

A report from Investegate says that shares in Game Digital are collapsing, down 40% at the open, or £0.80 at £1.25. The report lists the recently released statistics which show that Game Digital’s business is getting more expensive as its sales and margins drop.

Underlying operating costs of the business are up £5 million ($7.4 million) to £97 million ($144.1 million). However, the Group Gross Transaction value was down by 6.7% at £466.8 million ($693.6 million). The UK and Gross Transaction Value was down by 11.4% at £353.5 million ($525.2 million). There were also drops in console sales (down 20.3%) and the trading margin (down 4.8% to £73.9 million or $109.8 million).

The figures come in the wake of news earlier this year in which shares in the video games retailer collapsed by 50 per cent in January 2015. Nearly £300 million was wiped off the company’s value.

Three years ago, Game went into administration with 277 stores closed in the UK and Ireland. The two major contributing factors to this action were high fixed costs and an ambitious international expansion. The company was subsequently bought out of administration by OpCapita. Game then ended up being funded by Elliott Advisors which floated the video game chain at £340 million ($505.2 million) in June 2014.

Chief executive Martyn Gibbs said in a statement that 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.”

Game also commented on the immediate future: “The next few days will represent the busiest trading period for the Group. However, given the recent trends and disappointing sales since the start of school Christmas holidays, the board now expects that the Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) for the 26 weeks ending 23 January 2016 will be around £30 million.”

However, Game Digital did report that there was a significant increase in the revenue of pre-owned phone and tablet sales to £16.4 million ($24.3 million) – a jump of 91.8%.

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