‘Intense competition’ leads to GAME profit warning

Significant hardware bundle discounts have led to GAME warning investors that full year earnings will not meet expectations.

Aggressive price cuts to PS4 and Xbox One consoles throughout Black Friday and in the run-up to Christmas saw GAME cut prices to maintain market share, meaning returns were lower than originally envisioned.

We invested margin in offering gamers competitive product propositions through the bundling of games with hardware and reduced pricing, to recruit as many new generation customers as quickly as possible,” chief executive Martyn Gibbs said.

GAME Digital now expects earnings to be in line with last year’s 51.3m. Investors had expected that number to reach nearly 64m.

Sales for the 11 weeks ending January 10th were down 6.7 per cent year-on-year at 369.3m, or 5.4 per cent on a constant currency basis. This fall short of the overall market decline of 3.5 per cent and 3.0 per cent respectively.

This is all despite a 25.1 per cent jump in hardware sales year-on-year in the UK, while digital receipts jumped by 40 per cent.

For the 24 weeks ending January 10th the numbers were better, with sales up 0.4 per cent year-on-year and 1.9 per cent on a constant currency basis. New UK game sales were up eight per cent while pre-owned software sales grew 12.1 per cent for the 24 weeks.

"Compared with last year, greater hardware availability over the Christmas period fuelled intense competition between the platform holders across the market, presenting incredible value for our customers and driving substantial unit volume growth over the period," the chain said.

"The unprecedented promotional activity seen has also driven a faster than expected fall in the average selling prices of hardware as well as a greater prevalence of software ‘bundling’, leading to lower market value growth than unit growth in both of the Group’s markets."

The retailer ended 2014 as the best performing float of the year, peaking at 364.25p on November 12th and seeing the year out at 360p. It remains to be seen how the current price of 348p will be affected by the news in the morning.

"Our market has experienced significant uptake of Xbox One and PlayStation 4 with both achieving the current installed base in half the time of their predecessor consoles in our core UK market,” Martyn Gibbs added.

We have exceeded our expectations for the first year of the new console releases and are well placed to capitalise on over 4 million Xbox One and PlayStation 4 owners in our two major markets.

We have a solid line up of new physical and digital games being launched in our second half and have already secured a number of key exclusives. Our teams remain focused on delivering our unique specialist gaming experience for our customers.”

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