Game Group Shares Drop

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In a press release on Wednesday, Game Group Plc (LSE:GMG) announced a significant reduction in profit, prompting a 38% drop in share price by the early afternoon.

The Interim Management Statement indicated lower revenues year over year in all categories; software, hardware, pre-owned, and accessories. The company indicated that first week sales have remained high, however sales trail off more quickly than they have in previous years, accounting for the reduction in revenues.

Year to date, total store sales in the UK and Ireland were down 13%, while international sales were down 8.4%.

Expectations for the Full Year

Contrary to a statement released on 27 September 2011 indicating an expected 3% reduction in revenue from the prior year, the board now anticipates a drop in revenue of 7%. The board also predicts a drop in gross margin of 150 basis points and an £8-10 million reduction in operating costs. They believe that despite these losses, they will still outperform the market as a whole.

About their expectations, the company released the following:

“GAME continues to focus on delivering a further improvement in operating cash generation through strong working capital management, tight cost control and capital expenditure discipline. Combined with a robust balance sheet and available banking facilities, this means that the Group is well positioned for these difficult market conditions.”

Strategic Outlook

In the press release, Game Group announced several highlights of their business as well. Since the release of their new web platform, online margin has doubled, while their online share has remained at 19%. The company continues to close stores, with 37 closures so far this year. Group digital sales are up 40% year to date while GAMEwallet, an online platform for users to find and purchase digital games, was launched in October.

CEO Ian Shepherd said about the results:

“The overall video games market remains very challenging, despite strong title launches, and our guidance today reflects the extraordinary economic times in which we are operating. GAME has outperformed the market, reinforcing our position as market leader, and I am hugely proud of our teams. They remain focused on delivering our strategy, controlling costs and driving operational cashflow, and we remain well placed to benefit in the medium term both from the next console cycle and the growth in digital and social gaming.”

References
↑ Game Group Interim Management Statement

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