Game Group sales warning hits shares

By This Is Money
Updated: 04:18 EDT, 16 June 2011

Game Group is outperforming a declining PC and video game market, but despite a slate of pending new games it has downgraded its sales forecast.

LA Noire: Popular title has helped Game sales

The retailer's shares dropped 5.25p to 40p as it reported like-for-like sales were down 9.1% in its UK and Ireland stores and 9.4% lower across the group in the 19 weeks to June 11.

But the company pointed out that the wider games market is faring even worse, missing consensus industry forecasts with a revenue decline of 12.8%.

Game said the picture had improved in its own stores recently, with the group sales decline slowing to 4% in the past seven weeks as it got a lift from the release of popular title LA Noire.

It commented that last week's trade show E3 in Los Angeles had showcased 'strong' forthcoming game releases, including Modern Warfare 3, FIFA 12 and Mario Kart 3D.

But the firm added: 'Although impressive, we now believe that this year's software releases are unlikely to improve the market materially in the short term, given where we are in the hardware cycle.

'Having evaluated the recent E3 announcements in the context of overall market conditions, we now believe our group revenues will be 0% to -3% in 2011 compared to last year.'

The new sales forecast compares to a prediction of 2%-5% growth at its last update in April.

Game was more upbeat about the prospects for pending new hardware releases, the PlayStation Vita handheld and the Nintendo Wii U console, saying they boded well for 2012 and subsequent years.

Chief executive Ian Shepherd, a former Vodafone retail boss who joined Game last summer, said the firm was seeing early results from a strategic review launched in February, even though the games market had proved more challenging than expected this year.

The overhaul includes closing stores, targeting regular customers and young gamers with new loyalty and payment deals, and revamping its internet business so that it is more connected to the high street operation.

View from the City

'The UK business has performed well, no doubt capitalising on the uncertainty that surrounds HMV's fortunes,' said broker Oriel Securities.

'Game's position as a specialist has received another endorsement as a further 300,000 customers joined the loyalty card scheme, bringing the total to an impressive and lucrative 17.3m. As and when the games cycle starts to turn, Game Group is uniquely well placed to benefit.'

Kate Calvert of broker Seymour Pierce said it had a sell recommendation due to the lack of a fourth hardware cycle, the limited number of blockbuster games because of high development costs, the trend away from consoles to online gaming, and supermarket competition.

' Against this backdrop, we believe management's new 'Dedicated to Gaming' strategy will not be enough to stimulate sustainable growth for the foreseeable future,' she said.

'There remains downside risk to forecasts as we believe management should be more aggressive about closing stores down and taking cost out of the business.'