Shares of UK retailer GAME drop 40% following profit warning

Shares of UK video game retailer GAME have dropped by nearly 40% following a poor sales performance in the build up to Christmas. Sales have been worse than expected and have resulted in a profit warning, seeing the company lose a third of its value. GAME shares were at their peak in December 2014, reaching 360p per share, however following today’s announcement, shares are now trading at just 125p.

Profits for the six months to 23 January are expected to fall by 30% to just £30m, however GAME believe the busiest days are still to come with regards to Christmas, but that “recent trends and disappointing sales since the start of school Christmas holidays” means that they will not meet their expected profit margins.

The lack of sales have been attributed to the shift to a new generation of consoles, with gamers upgrading quicker to the PS4 and Xbox One than had been expected but were also buying less games than had been anticipated. GAME’s biggest profits come from the sale of video games rather than consoles for which the profit margins are relatively low. Therefore gamers buying less games have impacted the retailer hard. The company also claim that it is part of a wider decline in the video game industry which has seen sales drop by 13.5% over the last year.

GAME’s UK sales of video games and consoles for the 21 weeks up until 19 December have also fallen by 11.4% to £353.4m, with a 6.7% decline also reported in gross transactional value to just £466.8m.

3.7 million PS4s and Xbox Ones have been sold in the UK since the current-generation of consoles released in 2013. The PS3 and Xbox 360 had sold 2.4 million consoles in the UK after the same amount of time on the market. As a result of gamers upgrading, sales of games on the last-gen consoles has declined quicker than had been anticipated, dropping by 56.7%. Unfortunately for GAME, those sales aren’t being recovered by game purchases for the PS4 or Xbox One.

“The trading conditions in the UK video games market have been challenging,” CEO Martyn Gibbs said. “The switch over from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market.

Gibbs continued, “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. The pre-Christmas period and the winter sale are very important to our customers and with market leading offers we remain well prepared in our stores and online for the remaining peak trading period.”