GAME profits fall despite market growth across key trading period

GAME today reported that revenue from the second-half of last year was up by 3.9 per cent. However, gross profit was down by 3.1 per cent over the same six months. With the company citing low margin hardware and a lower mix of high margin sales.

The most significant loss of those high-margin sales was a drop in pre-owned software sales by 8.6 per cent. Pre-owned has long been a big earner for GAME, with far higher margins than brand new titles. The fall is undoubtedly down to stronger digital competition, with regular sales on major storefronts, and lower quantities of stock of the most-desirable titles, again as some sales shift to digital.

All that meant despite revenue rising from 498.1m to 517.4m (year-on-year for the the 26 weeks ending 27th of January), profit before tax for core retail activities actually fell by 65.1 per cent, from £22.1m to £9.7m.

However that was partly balanced by the company’s Events, Esports and Digital categories, which went from a £5.6m loss last period to a £2.6m profit. That growth in revenue reflects well on GAME’s longer-term strategy of moving ‘from lower margin retail sales to high margin gaming experiences.’

Plans contained in the report say the company will be expanding to approximately 100 BELONG arenas over the next three years. And that the company has entered into new borrowing arrangements with partner Sports Direct to fund all the planned new openings.

In his statement, CEO Martyn Gibbs said:

“During the period important strategic progress was achieved, helping us to better position the Group for our development in the rapidly growing esports market with our unique and high margin concept traded under the BELONG banner. This is further facilitated by entering into a new and exciting collaboration with Sports Direct that will allow us to accelerate our expansion and help develop a larger scale experience based gaming business than previously planned and steadily reposition our retail offering.

"The traditional retail landscape is under increasing pressure and we have developed a strong growth strategy to utilise the valuable components of our core business in building our new experience based gaming offer.

“We also delivered a strong sales performance in the first half of the financial year, driven by our ability to capitalise on strong customer demand for consoles (particularly Nintendo Switch™); a stronger line up of new software releases and the further development of the Group’s gaming experiences and events offering.

“Furthermore, during the period UK Retail delivered cost savings of c.£5 million as we continued to re-shape and right size the business. We continue to negotiate property savings and, where appropriate, close stores, rationalise retail working hours and deliver further operational and procurement benefits as well as focus on our core retail opportunities including a large array of new software releases particularly during the final quarter of the 2018 calendar year.”

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