Wednesday 16 November 2011

Game shares collapse, warns about tough Christmas

The share price fell 40pc to 11.42p in early trading. Two years ago the shares were at ten times that level.
The company, which is the country's biggest specialist video games retailer, said on Wednesday it had been hit by not just a cyclical fall in the video games market, but also terrible conditions on the high street.
Analysts were alarmed at the company's trading statement, which warned that sales would be considerably lower than expected and that the company's profit margins would be hit harder than previously forecast.
Ian Shepherd, the chief executive, said seven weeks ago that he was confident that the "embarrassment of riches" of new games in September, October and November would help the company hit all its forecasts. These included Call of Duty: Modern Warfare 3, FIFA 12 and Legend of Zelda: Skyward Sword.
However, this morning he said that though sales of the games had initially performed well, with the company taking market share off rivals, they had tailed off in a worrying fashion, leading him to predict that the crucial few weeks before Christmas would see a sales fall.
He insisted that it was not because supermarkets were luring customers away from Game. "This is profoundly not about share shift. This is a market size issue. It is lower than anyone predicted." Though customers were buying new games, it was often at the expense of new accessories or hardwared. "They've only got so much money in their pockets."
The company's sales fell 8.6pc on a like-for-like basis in the 41 weeks to November 12. This compares to a fall in the video games market of 12.3pc in the same period.
Though sales improved in the last seven weeks, thanks to the new games, they still fell 2.9pc compared with last year. This means it will be impossible for the company to hit its previous target of sales falling just 3pc at worst during the full year. It now says sales will be "no better than -7pc".
David Jeary, analyst at Investec, said: "Game's warning on the full year out-turn at this very early stage of the build to peak Christmas trading is a major disappointment, and potentially does not bode well for other retailers."
Sales of video games are very strongly linked to launches of new games consoles and this year has been a particularly poor one, with no major new launch, save for the Nintendo DS 3D, which most gamers were underwhelmed by.
Mr Shepherd said: "We've often experienced a cyclical slowdown in the industry, but we've never had one which has coincided with such economic malaise."
Next year sees the launch of two consoles by Sony and Nintendo. Kate Calvert, analyst at Seymour Pierce, said: "Key to short/medium term share price performance is cost cutting and judging whether Nintendo's Wii U launch, expected Spring 2012, and the Sony PlayStation Vita hand-held will kick off a 'fourth generation hardware cycle'.
"Meantime, while the management is starting to deliver a more multichannel offer and develop online income stream, we continue to believe that this will not be enough to replace the lost in-store income from the disintermediation of the gaming market away from the physical box market."


By taken from http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8893560/Game-shares-collapse-warns-about-tough-Christmas.html

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