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Game Digital scores profit rise despite revenue drop

By Duncan Ferris

Date: Thursday 21 Mar 2019

Game Digital scores profit rise despite revenue drop

(Sharecast News) - Computer games retailer Game Digital reported that cost-cutting had led to an increase in interim profits, despite a drop in revenue.
In the six-month period ended 26 January, Game recorded a profit before tax of £14.8m, an increase of 20% compared to the same period a year ago, while cost of sales was reduced by 6% to £371.3m and operating expenses were cut by 9% to £106.2m.

Meanwhile, revenue dropped by 5% to £492.9m as UK retail revenue declined 5% on the back of lower pre-owned games and hardware sales, while Spanish retail revenue dropped 2% despite strong sales of accessories and digital items amid the continuing popularity of 'battle royale' titles such as Fortnite that feature purchasable in-game items.

Martyn Gibbs, chief executive, said: "During the period the UK retail business delivered further efficiency improvements and achieved considerable cost savings across all areas including store operating and fixed costs, distribution and head office costs. Our flexible lease profile gives us a unique opportunity to work closely with landlords to manage our store portfolio and we continue to deliver, and anticipate ongoing, rent reductions."

Gibbs added that though the core retail businesses faces a "challenging" retail environment that continues to evolve at pace, the company was well prepared with its transformation programme and continued focus on costs and efficiencies.

As videogame sales become increasingly dominated by digital sales as opposed to physical discs, the London-listed company has launched a turnaround strategy to diversify away from a pure retail offering and into the events and e-sports space, which includes a roll-out of its Belong bookable arenas where gamers can play on various platforms.

"Belong remains core to our transformation strategy and we have continued to pursue the expansion of this business through enlarging current arenas, opening new arenas and are planning for bigger arenas in more locations. We expect the property market to further favour the tenant leading to improved deals being available for the rollout. Esports shows strong growth potential and we will capitalise on our unique position in the market to further expand our opportunities," said Gibbs.

Further on the outlook, the board believe there will be ongoing economic uncertainty and market headwinds which will affect the performance of the group in the near term, though confidence remains in longer-term growth prospects.

Kate Heseltine, analyst at Edison Investment Research, said: "Notably, the roll out of Belong, designed to position GMD as market leader in local and national e-sports, has been slower than we'd anticipated. Compared with our expectation for 20 new arenas in FY19, only two were opened in the first half. We anticipate the dynamics of the retail property market, with opportunities to gain significantly improved property deals, and the need to work in collaboration with Sports Direct will shift the pipeline of openings into subsequent years."

Game Digital's shares were up 4.14% at 27.70 at 0958 GMT.

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