A UK and Ireland Christmas sales slump of 17.6 per cent for the eight weeks ending January 7th has lead GAME to admit that it might have to rely on the good will of lenders to survive.
Described by BBC Radio 5’s Breakfast programme this morning as “the worst UK High Street financials of the day”, GAME has admitted that it is likely to miss its EBITDA covenants when tested on February 27th.
EBITDA stands for ‘earnings before interest, taxes, depreciation, and amortization’ and is set of targets any company must meet to satisfy creditors.
GAME estimates that given its year-end cash position “the debt service covenant should be met satisfactorily”. It adds that “the Group continues to be in regular and constructive dialogue with its lenders, who remain supportive”.
However, the admission for the first time raises the prospect of some more serious troubles for the Group. If it does miss its EBITDA targets then the possibility remains that lenders could choose to take decisive action.
Total sales for the eight weeks ending January 7th were down 14.7 per cent, with like-for-like sales down 12.9 per cent. For the 49 weeks ending January 7th total sales fell 11.9 per cent and like-for-like fell 10 per cent.
The worst declines were seen at GAME and Gamestation’s UK and Ireland stores, where total sales for the Christmas period fell 17.6 per cent. Like-for-like sales were down by 15.2 per cent.
For the year as a whole UK and Ireland’s total sales declined by 14.5 per cent and like-for-likes tumbled 12 per cent.
The only positive growth was seen in online, where Christmas takings were up 3.9 per cent and annual takings up 1.3 per cent. Digital sales were up an impressive 40 per cent, with half a million new customers joining GAME’s loyalty programme over Christmas.
GAME obviously chooses to point out that its performance was ahead of the UK game market’s annual 13 per cent decline. It also blames its aggressive price promotions – which it argues had to implement due to “challenging market conditions” – for its declining gross margins.
A total of 39 stores were closed throughout the year and it remains on target to have just 550 UK stores by 2013.
“Our industry had an incredibly tough 2011, and so did we,” CEO Ian Shepherd argued.
“We remain the market leader and have a clear strategy which will return the business to growth. We are adapting to the changing market and are well prepared for the next hardware cycle.”