Game has said it has put its overseas operations under review, confirming Retail-Week.com’s story yesterday.
In a statement to the Stock Exchange, Game said: “In response to press speculation the Game Group plc confirms that it is in ongoing dialogue with its lending syndicate to reach agreement on revised terms for its facilities.
“As part of these discussions, the lending syndicate is reviewing a strategic plan of the company which includes a review of its overseas operations.”
Retail-week.com revealed yesterday that the retailer, which has 670 international stores compared with 615 in the UK, is understood to have hired Rothschild to seek a buyer for all or parts of its loss-making overseas business.
Analysts believe Game could return to profitability in a year if it offloads its loss-making overseas business.
City observers said a disposal of the international business would make sense and change the retailer’s profit profile. One, who wished to remain anonymous, said that if a deal gets away “Game could potentially be profitable next year”.
Game group losses before non-recurring costs and tax widened from £18.8m to £48.5m in its first half. Game generated sales of £595m from the international arm in the year to January 31, 2011, from 670 stores. However, the division reported an operating loss of £15.7m.
In January the retailer warned it may not meet its EBITDA covenants, which are tested on February 27.
The value of Game’s overseas business is not clear and it is uncertain which parts of its overseas business are up for sale.
Sources told Retail Week that it is likely the retailer will try to sell in all markets, either piecemeal or in one deal, in order to stem widening losses in the face of a punishing games market.
Game has shops in France, Sweden, Norway, Denmark, the Czech Republic and Australia, but makes half its overseas revenues in the Iberian peninsula - Portugal and, most importantly, Spain.
One analyst told Retail Week that the plan to sell off its international arm was sensible, and would win the retailer time until the games market improved.
Later this year, Microsoft is expected to launch the next generation of its popular Xbox console, which would stimulate hardware and software sales for Game, which is suffering at a low point in the games cycle.
The analyst said the move to sell its overseas arm would “buy Game time and bring in a level of cash”. “It will stem losses, it will be helpful,” the analyst said. “The international business is facing challenges in terms of gross margin and like for like growth.”
Likely buyers of the business are not obvious. Game’s main global rival, Gamestop, is pulling out of some of its overseas markets, including the UK, where it will retain an online presence only.
Potential buyers will look at whether Game has a market leading position in particular countries, how much investment will be needed, and to what extent structural challenges, such as the digitalisation of the games market, are affecting performance.
The retailer is slimming down its domestic operations too in the tough conditions. It has around 615 UK shops at present, which it will trim to 550. Chief executive Ian Shepherd is focusing efforts on transforming Game into a customer-centric multichannel business.