Confidence in Game’s return to the stock market was rattled last week when it issued a shock profit warning after sales fell over Christmas.

Confidence in Game’s return to the stock market was rattled last week when it issued a shock profit warning.

For some though, it may not have come as much of a surprise. Game’s float was in many ways the most controversial of all retail IPOs last year. The games specialist had crashed into administration two years earlier after clocking up rising debts and falling victim to the cyclical market.

While Game pinned last week’s woes on heavy discounting, the issues of the console cycle – completely out of Game’s control – as well as the growth of digital have not gone away.

And the retailer’s profit warning – it now expects full year EBITDA of £51.3m, down from initial consensus of £63.8m - will have brought those issues into sharp focus, particularly among the more cynical of observers who cast doubt on the IPO.

Will investors be wishing they had steered clear of Game? Maybe not just yet. After all, it ended 2014 as the best-performing float of the year. And it certainly wasn’t the only retailer to suffer in the highly promotional environment over Christmas – Boohoo.com, which also floated last year, issued a profit warning earlier this month.

Impact of Black Friday

And while Game suffered a margin hit after Black Friday discounting drove prices down, the retailer shifted huge volumes. Liberum analyst Tom Gadsby believes Game would have risked losing loyal customers if it had refused to partake in Black Friday.

Gadsby adds that while this profit warning will raise concerns among investors, “we believe that this is a very different company from the one that went into administration”.

He highlights its restored market share to pre-administration levels, despite halving the store base, and its highly cash-generative structure.

In terms of market share, Game looks to have delivered a good Christmas, and it is only in the early stages of the cycle, so there is a lot still to play for.  

But the retailer cannot afford to put a foot wrong from now on if it wants to quash the naysayers.

Game chief executive Martyn Gibbs told Retail Week in May last year – a month before it floated – investors would not be spooked by the retailer’s rocky past. “Investors are smart people,” he said. “They’ll take our investment case on its own merits rather than looking back.” Gibbs will hope the same goes for last week’s profit warning.