Weak releases dampen Game profits but outlook is positive

Pre-tax profits tumbled 66% to £10.8m as the retailer struggled against tough comparatives and a weak release schedule.

Group turnover dipped 7% to £690.8m, while like-for-likes plummeted 16.3%.

In the year to date – the 33 weeks to September 19 – like-for-likes dropped 16.6% while total sales declined 8.8%. In the UK and Ireland, like-for-likes fell 17.9% and total sales dropped 14.2%. Like-for-likes at its international arm declined 15.5% while revenue increased 7.3%.

But gross margin improved 190 basis points as Game benefited from the 12.3% sales growth in its second-hand offer as well as a favourable mix in sales towards software.

The retailer said last month’s price cuts affecting the PS3 and Xbox 360 had helped to “significantly” stem the like-for-like decline in recent weeks.

Game chief executive Lisa Morgan said: “These are very solid results. We’re returning to more seasonable trading patterns up against the record half last year. There is still a strong demand for games, albeit at a slower rate for hardware.”

She added: “We’re mindful of the wider economic conditions but the Christmas line-up is looking very positive. There are some really big titles, such as Call of Duty: Modern Warfare 2, which has the potential to beat all records.”

Game is “evolving” its ecommerce strategy, including the sale of online time cards, which allow gamers to play over digital networks.

It also hopes to achieve a further £6m of savings in the second half from buying synergies with Gamestation, the rival it acquired in 2007.

Morgan said that its key overseas territories are Spain, where it is the market leader, and Australia, where it is “trying to build scale”.

Singer Capital Markets analyst Matthew McEachran said: “The weak US data and GameStop warning in August highlighted just how tough the summer months have been given the exceptionally strong comparatives and the relatively weak software release schedule.”

He remains “cautious on the outlook” for Game due to “an erosion of high-margin pre-owned share and footfall as rival HMV expands its gaming offer”, as well as uncertainty over the next generation of consoles and the threat of digital distribution “looming in the medium term”.

Game, which operates 1,368 stores, will open 50 to 60 shops in the second half.