LONDON BRIEFING: HOW LONG will it be before the headline writers can indulge themselves with a "Game Over" headline for Europe's largest high street computer games retailer?
Along with a grim profits warning yesterday Game Group warned it was in danger of breaching its banking covenants, sending its shares crashing by 40 per cent to less just 4 pence. A year ago, they were trading at 70 pence; three years ago it was 200 pence.
Analyst Philip Dorgan at Panmure Gordon has been a bear of Game for a while – when the group unveiled hefty first half losses in September but accompanied the news with an optimistic look ahead to Christmas, he likened the statement to “a child’s letter to Santa.”
And so it proved, as dire trading forced directors to issue a pre-Christmas profits warning in November. Game warned then it was trading below expectations so analysts were already expecting a full year loss. Now, however, they fear those losses could reach £30 million (€36 million) – more than double the ailing retailer’s stock market value.
Yesterday’s fresh profits warning follows a 15.2 per cent slump in sales at the group’s 600-strong shops chain in the UK and Ireland in the crucial eight weeks to January 7th, despite heavy price cuts, a dismal performance that was only slightly offset by its overseas outlets.
Although games such as Call of Duty: Modern Warfare 3sold well at Christmas, belt-tightening by consumers depressed sales of the higher-margin consoles and accessories. Game has an online presence but it also has a chain of 610 shops in the UK and Ireland and is struggling to compete with the supermarkets and internet retailers. It plans to cut its shops to around 550 by next year.
Game chief executive Ian Shepherd says he is confident in the future of the games market and is pinning his hopes for improvement on new console launches later this year – the Playstation Vita which launches in Europe on February 22nd, followed by the Nintendo Wii U. Game expects to be the European market leader for each launch but analysts fear the main beneficiaries will be the supermarkets and online retailers.
The group has a clear strategy, Shepherd says; it is adapting to the changing market; it has cash in the bank and remains in “regular and constructive dialogue” with its lenders. With the shares languishing at 4 pence, the market clearly doesn’t share the Game chief executive’s confidence, although at least they stopped short of likening his statement to a letter to the Easter Bunny.
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ELSEWHERE IN the stores sector the headline writers did manage a bit of fun with a “Christmas Turkey” from Morrison’s, Britain’s fourth-largest grocer.
Morrison’s had been expected to lead the supermarket pack over the festive season but, at 0.7 per cent, down from a robust 2.4 per cent in the third quarter, its underlying sales growth fell well below City forecasts. In sharp contrast to the more up-market Marks & Spencer, which shifted six million packs of party food, Morrison’s said its customers had been forced to trade down over the festive season.
The belt-tightening saw champagne sales at Morrison’s slide by 7 per cent but sparkling wine sales soar by more than 150 per cent. Sales of pork, cheaper than turkey, also rose. Morrison’s kept customers coming with a raft of promotions in the run-up to Christmas but, as well as trading down, they bought fewer items.
At Marks & Spencer, however, shoppers really pushed the boat out – on food at least. The group introduced 600 new lines for Christmas, which helped push sales up by a much better than expected 3 per cent like-for-like. M&S customers splashed out on expensive treats from pork mustard mini sausages to pork crackling straws and salted caramel profiteroles. Online sales were boosted by the launch of a Christmas food-to-order service.
Chief executive Marc Bolland said customers had cut back on other spending to ensure they could still enjoy their traditional festive feast. While that was good news for the M&S food departments, it wasn’t so good for clothing and homewares, by far the biggest part of the business. General merchandise sales fell by 1.8 per cent and M&S had to make hefty price-cuts to part customers with their cash.
The discounting activity is hurting margins at MS, just as it is elsewhere on the high street, although Bolland reckons the group can make up the shortfall with cost-cutting. Shoppers are still going to expect their discounts as 2012 progresses, however, and there’s a limit to how much M&S can cut.
Fiona Walsh writes for the
Guardian
newspaper in London
