11th Aug 2015 11:39
LONDON (Alliance News) - GAME Digital PLC on Tuesday said it achieved "robust trading" in the second half of its financial year and said that is expects to deliver adjusted earnings before interest, tax, depreciation and amortisation in line with market consensus for the full year, after previously posting disappointing first-half results.
The video game and console retailer said it made a good uplift in gross margin and a positive Ebitda contribution in line with expectations in the half year ended July 25, ahead of the breakeven Ebitda reported in the second half of the prior year.
Revenue excluding hardware grew 7% in the period, with gross margin on content sales up by over 300 basis points, boosted by a significant increase in digital sales, which rose 16% in the half. Pre-owned and other non-hardware sales were also up strongly, GAME said.
Hardware revenue, however, declined 19% due to lower average selling prices following an initial surge in sales after the launches of Xbox One and PlayStation 4, although as a result of the strong sales performance in its other product areas, the group's gross transaction value increased 1.0% in the second half and 2.3% in the full year to approximately GBP960 million.
GAME said that its gross transaction value was well ahead of the combined video games market of the UK and Spain, which saw a decline of 6.0% in the second half and 1.3% over the full year.
Overall margin was up over 200 basis points in the period given the bigger mix of higher margin product sales versus lower margin hardware sales, as well as the overall improvement in margin rate in both categories, GAME said.
"Our preparations for this year's peak trading season are already well advanced. The line-up of new physical and digital games launches in the coming months looks very strong and our pre-order rates on the major titles are encouraging, supported by our excellent range of exclusives," Chief Executive Martyn Gibbs said in a statement.
Back in March, GAME reported lower profit and revenue in the first half of the year after it was hit by difficult trading over the key Christmas period. It reported a pretax profit of GBP33.2 million for the 26 weeks to January 24, down from GBP33.8 million a year earlier, as revenue slipped to GBP582.1 million from GBP586.4 million.
GAME said at the time that its margin had come under pressure from bundling more games with consoles and also said that the UK market had been slower than it hoped at the start of the second half.
However, the retailer has managed to pick itself up, with analysts at Liberum saying that GAME's trading update has confirmed a return to growth.
"As the initial flurry of excitement in the new console cycle abates, the real driver of group profit, content rather than hardware, is now coming to the fore," Liberum said.
"Looking ahead to 2016, we see diminishing risk around peak trading as the console cycle develops, supported by a strong line up of titles to drive content sales," the broker added.
"We estimate that there will be 4.5 million new generation consoles by peak this year versus 2.5 million last year, which means an extra 2 million gamers who will not be buying the package of a new console bundled with three or four new titles. This is what did the damage to GAME's market last year," Liberum said.
GAME itself said it is optimistic that it will continue to improve as the market picks up.
"Looking ahead, the group expects the overall UK video games market to grow slightly over the next twelve months, with the shape of the market continuing to develop in the way it has in the second half of 2014/15. Increasing sales of higher margin new generation software, digital content and accessories to the growing installed base of PlayStation 4 and Xbox One owners is anticipated to more than offset the continued declines in the value of lower margin hardware sales (driven by lower selling prices) and prior generation (PlayStation 3, Xbox 360) software sales," GAME said on Tuesday.
"As a result of these market dynamics and continued progress with the group's strategic initiatives, the board remains confident that the group will achieve growth in sales and profits in 2015/16," the company added.
Shares in GAME were trading up 1.7% at 264.44 pence Tuesday afternoon.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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