Game Digital puts profit warning behind it despite slowdown in console sales

 
Kasmira Jefford
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The company is reaping the benefits of its expanding esports business (Source: Getty)

It has been almost two years since the launch of Sony’s latest console, the PlayStation 4 (PS4) and Microsoft’s Xbox One and after the initial sale frenzy, demand is now cooling, according to Game Digital.

The video games retailer said revenues at its hardware division were hit by a near 20 per cent drop in console prices in the second half of the year to 25 July. However a strong performance from other parts of the business such as games and accessories help largely offset this.

Revenues excluding hardware jumped by seven per cent while digital sales also performed well, up 16 per cent.

Chief executive Martyn Gibbs said: “The group traded well throughout the second half, with a strong performance on new release titles and pre-owned technology products contributing to a nine per cent year on year increase in second half margin delivery.”

“Our preparations for this year’s peak trading season are already well advanced. The line-up of new physical and digital games launches in the coming months looks very strong and our pre-order rates on the major titles are encouraging, supported by our excellent range of exclusives.”

Game relisted on the London stock market in June last year two years after being rescued out of administration by US activist hedge fund Elliott Advisors.

After ending the year as one of the most successful floats, the retailer shocked investors by issuing a profit warning in January, blaming fierce competition in the run-up to Christmas.

Finance boss Benedict Smith quit just weeks later, with House of Fraser’s chief financial officer Mark Gifford taking his place.

However after a tough first half, Game said its performance had picked up, adding that it expects to meet market expectations for the year. Analysts are predicting earnings before interest, tax, depreciation and amortisation (ebitda) of around £46.4m.

Figures out this week on the physical entertainment industry from Kantar Worldpanel showed Game has grown its market share to 31.7 per cent in the second quarter of the year from 29.1 per cent last year.

It is also reaping the benefits of its expanding eSports and gaming events business after buying Multiplay for £20m in March. The deal was part of its aim to shift away from being a pure retailer and “drive deeper interaction with gamers”. The next Insomnia gaming festival at the end of August, will be the company’s largest ever event, with over 35,000 tickets expected to be sold, and hundreds of thousands more viewing the event online.

Canaccord Genuity analyst Simon Davies said: “After a challenging first half, it is encouraging to see trading stabilise and we believe the group is very much on track. For 2016, management remains confident of generating further growth, driven by higher margin software (with a particularly strong Christmas release slate, including new Star Wars, Halo and Fall Out iterations), pre-owned, Toys to Life products and its push into pre-owned hardware."

“There should also be some benefit from the launch of a raft of new Virtual Reality hardware - HTC's Hive, Sony's Morpheus, and Facebook's Oculus Rift. And further out, there is still the expectation of a new Nintendo console launch for the second half of 2016.”

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