GAME Group (The)

Video and PC games seller GAME has warned on profits after finding the recent going tough in its markets.

In an update covering Christmas trading as well as the 49 weeks to 9 January, fully-listed GAME highlighted disappointing sales trends. In the five weeks to 9 January, total sales decreased by 12.1% and like for-like sales were 13.8% weaker, with the UK and Ireland proving particularly weak. The picture was similarly gloomy for the 49 week period, with total sales declining by more than 11% and UK and Ireland like-for-likes reduced by almost 17%.

Peter Lewis, chairman, attributed the poor performance to ‘negative trends’ in the PC and video games market, which in the UK alone contracted by 24% last year. The Christmas selling period proved tough, despite some ‘strong software releases’ and an unprecedented ‘installed base’ of games consoles in consumer hands.

Lewis, highlighting the detrimental impact of customers shopping later, also pointed out GAME was a victim of its own success, having to perform against strong comparatives - record sales and profits were produced in the year to January '09.

On the positive side, customers have responded well to offers and new games releases since Christmas and while annual adjusted pre-tax profits to January 2010 will come in somewhere between £87m and £93m, substantially south of forecasts, this will still represent the second best profit performance in GAME's history.

GAME, a cash generative concern, sees sales declining again in 2010/11, although its balance sheet strength represent a nice buffer, with year-end net cash expected to exceed the £81.4m of a year ago. Nevertheless, given economic uncertainties and ongoing pressure on profitability, the recently browbeaten shares are best avoided.