GAME issues fresh profit warning

Retailer GAME has told investors that its full year profits will be substantially below previous expectations”.

It is blaming the performance on what it has for a long time described as market challenges”, but also specifically this time on the Nintendo Switch stock situation.

Consumer demand for Nintendo Switch has been, and remains, very strong, however the level of supply to the UK market has been lower than expected,” the company said. These lower levels, combined with the continued softness in our core Xbox and PlayStation markets, have impacted sales.

Looking forward, we continue to be encouraged by the positive consumer reception of Switch in both of our geographic markets. This demand is helping to strengthen the outlook for our next financial year and we expect to benefit from both greater Switch hardware supply as well as the strong interest that is building for Microsoft’s new Xbox One X console.

The Group continues to actively implement its UK action plan, encompassing improved supplier arrangements, enhancements to the customer experience, further operational progress including cost reduction programmes and disciplined cash management. Significant efforts are being made on reducing fixed and variable costs across the Group’s UK retail footprint.”

GAME’s share price, which has been struggled for a long time now, slumped even further on the news. It currently sits at just 24p, which is over 27 per cent down on the 33p it was trading at at the close of yesterday. The company’s peak price came in late 2014 when it hit 3.60. It has not traded above 1 for over a year now.

Stock market blog The Motley Fool said just this month that it would not touch GAME’s shares with a barge pole”, adding: Just why anyone would consider investing in the high street video game retailer in 2017 is beyond me. With the popularity of online gaming making traditional consoles look increasingly outdated, I believe GAME — which struggles to compete on price with online behemoths such as Amazon anyway — is a company in terminal decline.

Aside from my concerns about where exactly it hopes to find and retain new customers, a quick look into GAME’s financials is more than enough to put me off the company. Operating margins and returns on capital have fallen dramatically in recent years. Free cashflow? Don’t even go there.

GAME is one business that — in my opinion — is very unlikely to recover.”