“The company’s current trading performance was worse than expected,” Janco Partners’ Mike Hickey stated.
“The departure of key executives from the company’s management team and current trading performance does not go unnoticed or unappreciated, suggesting continued near term difficulties and a lack of any meaningful near term positive catalysts
“The long term bear thesis remains effervescent; digital distribution, used competition, predatory promotional pricing and deteriorating like-for-like sales.”
Hickey adds that he expects GAME’s like-for-like sales to fall 5.8 per cent in fiscal 2011, with hardware sales dropping 19 per cent and software sales falling three per cent.
There was some good news in Hickey’s note, however, with the analyst pointing out that despite the stormy horizon, investors are seemingly more optimistic.
“The interest level from long focused investors is notable, and suggests the likelihood for continued share appreciation, potentially exceeding our slightly reduce price target,” he added.
“Investors seem focused near term on current share valuation, easing market growth comparables, new hardware innovations from Microsoft/Sony, consolidation potential and a relatively strong fiscal 2011 game slate.”
He also foresees eight per cent year-on-year growth in the pre-owned games sector.
GAME admitted last week that its store closure plans have been partially influenced by the rise of digital distribution.