GAME revenue up but profits tumble

The retailer GAME posted a revenue increase of 3.9% for the 26 weeks ending January 27th, 2018.

The firm delivered £517.4 million in revenue, but its profit took a significant hit. Profit before tax fell 25.5% - falling from £16.5 million for the same period a year prior to £12.3 million. The drop in profit was primarily down to the firm's retail division, which fell significantly from £22.1 million in 2016/2017 to £9.7 million in 2017/2018.

The reason for the decline in profits is due to decreasing margins, plus a drop in pre-owned sales overall (a drop the firm associates with poor mint software sales a year prior). Part of this drop has been offset by significant store savings of £5 million, although this has partially resulted in a decline in GAME's console market share.

There were a lot of positives in the latest financials, however. The firm's Gross Transactional Value is up 3.8% year-on-year to £586.8 million, driven by a 24.7% improvement in hardware value, 3.3% increase in physical software and a 31.5% improvement in events and digital.

Events and digital is the key area that GAME is focusing on. The firm now plans to open 100 of its Belong concept stores within three years, including outlets in Sports Direct - which recently invested in Belong and took a 50% stake in the Belong brand. Sports Direct spent £3.2 million on the concept and has made £55 million available to GAME to use to grow the Belong arenas (and other initiatives).

The Events, Esports and Digital division saw sales grow 15.6% to £8.9 million in the 26 week period - this is driven by both Belong and the events business (including Insomnia and Minecon).

The company's Spanish division is continuing to show growth, with a record GTV of £212.4 million. Overall, the firm's retail store count is down by 15 year-on-year, with 12 store closures coming from the UK. This includes the recent collapse of Maplins, which housed four GAME store concessions.

The company has short leases on its stores, so can make quick decisions over unprofitable locations. It says there are 233 'lease events' to take place before the end of December 2018.

Elsewhere during the half year, GAME sold its Multiplay Digital division to Unity for £19 million.

Today, the company also announced that Martin Hopcroft has become interim Chief Financial Officer, following the departure of Mark Gifford.

Moving forward, the firm acknowledges a weaker release schedule for the second half of its financial year, although points to a strong H1 (calendar year H2) - which includes Red Dead Redemption 2, Super Smash Bros, Shadow of the Tomb Raider and Call of Duty: Black Ops 4. It feels that the weaker initial release period will be offset by efficiencies and cost savings.

"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," said CEO Martyn Gibbs in his statement. 

"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 £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."