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Game Group losses expected in big week for retail

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Entertainment retailer Game Group is set to unveil its half-year trading update tomorrow morning, and analysts are expecting losses of between £30 million and £45 million for the six-month period.

The company, which owns Game and Gamestation stores, and is currently undertaking a new digital-led strategy to turn its fortunes around after a tough two years, has been hit hard by slowing consumer spending on the high street and the rise of online competitors.

Of course Game generates most of its revenues in the second half of every year, with the Christmas period of vital importance to the business, but any mounting losses will be a concern for the company and investors alike.

Flooring specialist Topps Tiles and formal fashion retailer Moss Bros are also due to announce trading updates this week, giving some indication of the current state of the British retail landscape which has been hit by a high number of administrations and profits warnings already this year.

The end of the week also marks quarterly rent day, which in June coincided with a number of retailers falling into administration as payment to landlords tipped them over the edge following months of struggles.

With over 600 stores nationwide though, Game Group is the largest retailer updating the market this week, and having secured new finance facilities earlier this year there is certainly no danger of it collapsing, albeit times are tough.

In its last interim management statement in June, the group said that like-for-like (LFL) group sales for the 19 weeks to June 11th 2011 were down 9.4 per cent year-on-year, while in the UK & Ireland, its largest market, LFL trading dropped 9.1 per cent.

Nick Bubb, Retail Analyst at stockbrokers Arden Partners, which had pencilled in a loss for the group of £34 million, said that tomorrow’s statement may result in his company significantly cutting full-year profits-before-tax (PBT) estimates.

“Unless there was a miraculous pick-up in trading last week, on the back of the launch of the ‘Gears of War 3’ game, we are likely to have to slash our full-year £27.5 million PBT forecast to below £20 million,” he explained in a statement this morning.

“The only debate is whether the 1.88p interim dividend will be halved (which is our full-year forecast) or swept away completely.

“Even if the forward yield is only 13.5 per cent, rather than 27 per cent, the shares will need a lot of management reassurance, about Christmas trading and the upturn in the game hardware cycle next year, to hold their own at c21p in this kind of bear market.”

Among the recent initiatives unveiled by Game to help take the business in a new and more profitable direction has been the launch of services that will seeSony Playstation and Microsoft Xbox digital downloads sold in its stores for the first time.

In a further move towards multichannel retailing, the group last week also announced a partnership with on-demand video game service OnLive, which will be the UK debut for its innovative service offer.

OnLive allows its customers to stream the latest high-end video games onto online devices regardless of their performance capabilities, allowing consumers to play games via cloud-computing services without the need for a console.

Games in this format will be available on the Game and Gamestation websites later this year, and other OnLive offerings will be sold in stores across the UK thereafter.

Commenting in June, CEO of Game Group Ian Shepherd said that he is confident that the various initiatives implemented by the company throughout 2011, and a greater focus on its online offering, will aid the business in the long run.

“We are seeing early results from the strategic initiatives that we outlined in February, even though the video games market has been more challenging than anticipated this year,” he remarked.

“The pipeline of new hardware and software which has been announced for 2012 and beyond is encouraging, and our strategy is designed to strengthen our leading position and drive growth as the market transitions and evolves over the next five years.”

Published on Monday 26 September by Editorial Assistant

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