Press releases
Interim Management Statement
17/06/2010
The GAME Group plc ("GAME" or "the Group"), Europe's leading retailer of pc and video games products, today issues its Interim Management Statement covering the period from 1 February to 12 June 2010.
Trading Update
The market for pc and video games continues to be challenging across Europe, particularly in the UK. The good range of software releases, such as Red Dead Redemption and Battlefield: Bad Company 2, have sold well, although not in sufficient volume to offset the year on year decline in hardware and software sales. In the UK market, hardware revenues have decreased by 33%, primarily due to lower Nintendo sales, and software decreased by 11% leading to an overall decrease of 19% (source: GfK ChartTrack).
For the first 19 weeks to 12 June 2010, total Group sales were down by 11.4% and like for like (lfl) Group sales for the same period were down by 12.3%. In the UK and Ireland, total sales were down by 18.5% and lfl sales were down by 17.2%. In our International business, total sales were up by 1.2% and lfl sales were down by 4.6%. In our Online business sales were up by 13.5%. Excluding the impact of the DSi launch in the prior period, Group lfl sales were down by 8.4%.
Despite this revenue performance we have continued to outperform the market, by offering customers exclusive extras on new product releases, such as unique digital weapons and vehicle designs for Battlefield: Bad Company 2, and exclusive outfits for characters in Red Dead Redemption; plus value for money on hardware bundles, deals of the week and through our leading trade-in and preowned programmes which continues to give us a real point of differentiation in the market.
In order to outperform the market we have, as outlined in April, strengthened the value proposition in our stores and our online businesses. As a result, we now expect full year gross margins to decrease by around 100 basis points year on year.
Operations
We are making good progress with the plans outlined in April to develop our unique combination of specialist brand attributes, value, range, service and loyalty, in all channels to market.
Stores are the main route to market for pc and video games, and our aim is to have a store footprint in each market that reflects its maturity and the specific demands of our customers.
In the UK, 42 of the 43 overlapping stores identified for closure in April will be closed by 19 June, and 25 of our new concept stores are now open.
Internationally, we continue to grow our market leading positions in both Iberia and the Czech Republic and plan up to 15 new store openings.
The review of our businesses in France and Australia has confirmed our belief that we have two worthwhile businesses although changes are necessary. In both territories we have immediately made changes to the senior management teams, and have started reviews of our commercial proposition and cost structures. We are targeting break-even in both markets during 2011. This restructuring will result in some non-recurring costs this year and we will provide more details in our Interim Results Statement in September.
In our Ecommerce channel, we have seen our growth exceed that of the wider UK online market. The wider UK online market now accounts for 17.6% of total sales in the UK market (see table below). The implementation of a new Group infrastructure and back office system is on track.
In the digital channels, as outlined in April, we are strategically well positioned to identify and maximise the opportunities as they evolve.
Our capital expenditure for the full year will be lower than originally anticipated, at no more than £21m (2009/10: £30m).
We continue to maintain tight cost control across the business, generating £5m of cost savings this year, to be delivered in the second half of the year, and £7m of additional cost savings next year, more than previously announced.
The Board
We have today announced the appointment of Ian Shepherd as Chief Executive, with effect from 28 June 2010. Chris Bell, who has performed the role of Interim CEO since 21st April 2010 pending the appointment of a new CEO, will then resume his role as the Group’s senior non executive director. The Board is delighted that Ian has accepted the role, and is confident that he has the talent and energy to develop our customer proposition further and to drive the business forward.
The Market
There were some important announcements for the games industry at the recent E3 show. All of the products which were unveiled will require dedicated specialist retail outlets to maximise their launch potential. These include:
Hardware – New style Microsoft Xbox 360 250GB; Nintendo 3DS; 3D gaming on PS3
Software – Gran Turismo 5; Halo: Reach; The Legend of Zelda: Skyward Sword; Call of Duty Black Ops; Medal of Honor; Killzone 3; Assassin’s Creed: Brotherhood.
Peripherals – Sony Move; Microsoft Kinect.
(We await final confirmation of all European launch dates and prices)
As Europe’s leading video games retailer, with nearly 15 million loyalty card members and 1,343 stores, we are working closely with supplier partners to generate high profile campaigns which will give our customers great offers, exclusive extras, and unrivalled expertise.
Outlook
To date, our revenue performance has been broadly in line with our expectations. We have maintained or improved market share in each of our territories, and are focussed on evolving our brand proposition in multiple channels.
The news flow from E3 has been positive for the specialist retailer with an exciting range of new software releases, and further details about new motion sensing technology that will transform the way people play pc and video games. We will use our trade-in and preowned programmes in particular to maximise the opportunities of these launches.
The new technology releases are unlikely to materially impact our trading performance until next year, with year on year market revenue declines still expected in 2010. Consequently, although we expect to outperform the market with the strength of our preowned offering, we anticipate negative full year lfls. This revenue profile, coupled with our enhanced value proposition, will prompt a return to our traditional performance trends with losses in the first half and profits in the second half.
The Group continues to operate with a strong balance sheet. The Group net debt at 30 May 2010 was £78m (31 January 2010: net cash £45m). Average net debt during the year to 31 January 2011 is expected to be around £60m.
The Board recognises that this is a transitional year for the pc and video games market and the Group. We believe that the new disc based technology entering our marketplace will extend the life of existing third generation technology and move us towards the next cycle of innovation. While we remain mindful of the challenges we continue to face, we are confident that our retention of clear market leadership in our principal territories will deliver us success through all stages of the new hardware and software launches.
- ends -
The Group will hold its Annual General Meeting on 22 June. There will be no further trading update at that time. The Group will next report in September 2010 when it will publish Interim Results.
Notes:
1. Store portfolio:
| 12 June 2010 |
31 January 2010 |
|
|---|---|---|
| Number | Number | |
| Company owned and concessions | ||
| UK and Ireland: | 641 | 677 |
| - GAME - stores | 382 | 390 |
| - GAME - concessions | 12 | 33 |
| - Gamestation | 247 | 254 |
| France | 198 | 199 |
| Iberia | 287 | 283 |
| Scandinavia | 68 | 68 |
| Czech Republic | 30 | 29 |
| Total Continental Europe | 583 | 579 |
| Australia | 118 | 118 |
| Total International | 701 | 697 |
| Total owned and concessions | 1,342 | 1,374 |
| Franchises | ||
| France | - | - |
| Iberia | - | 5 |
| Australia | 1 | 1 |
| Czech Republic | - | - |
| Total franchises | 1 | 6 |
| Total operational outlets | 1,343 | 1,380 |
2. UK Market revenues by channel:
| Channel | Packaged software: Stores | Packaged software: eCommerce |
Digitally distributed software |
| Share of UK market revenues, Q1 2010 | 80% | 17.6% | 2.4% |
Source: Parker Consulting Ltd
Enquiries:
| The GAME Group plc: | +44 (0)1256 784566 |
| Peter Lewis, Chairman Chris Bell, Interim Group Chief Executive |
|
| Ben White, Group Finance Director | |
| Simon Soffe, Investor Relations and Group Communications Director | |
| Brunswick: | +44 (0)20 7404 5959 |
| Jonathan Glass, Wendel Verbeek, Oliver Hughes |
