By Steve Moore | Friday 30 June 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Having previously, early this year, concluded on GAME Digital (GMD) it early days in the ‘diversification’ and I continue to consider it far from certain that there is a sustainable proposition here; avoid/sell, I note a “Trading Update” announcement from the company today.
This commences; “In the UK, the group continues to focus on addressing the market challenges faced in its core console categories and on delivering on its strategic and cost efficiency initiatives. Our Spanish business continues to trade strongly, in line with expectations, and is on track to achieve record sales in the year”. Sounds reasonable enough.
The next paragraphs include; “we anticipated an overall positive sales performance in the second half of the year, underpinned by the successful launch and continued consumer demand for the Nintendo Switch console… Consumer demand for Nintendo Switch has been, and remains, very strong.” Good, good. “However”. Uh oh…
... “The level of supply to the UK market has been lower than expected. These lower levels, combined with the continued softness in our core Xbox and PlayStation markets, have impacted sales”. Profit warning AHOY!… and there it is; “the group still expects to deliver positive group gross transaction value growth in the second half of approximately 5-6%, however this is below our previous expectation. As a result, we now expect Adjusted EBITDA for the full year to be substantially below previous expectations”.
It attempts to mitigate that, looking further forward;
“We expect to benefit from both greater Nintendo Switch hardware supply as well as the strong interest that is building for Microsoft's new Xbox One X console. Furthermore, we expect to see growth returning to the UK and Spanish software markets in our next financial year, benefiting from a stronger line up of new releases on Xbox, PlayStation and Nintendo. The board is pleased with the progress achieved on the group's key growth initiatives. In particular, we continue to be encouraged by the initial performance of our new in-store gaming arenas, now trading out of 12 locations, under the BELONG banner. As a result, the group is exploring new funding arrangements to enable an acceleration of the roll-out of this new initiative.”
Hmmm, “expect to see growth returning” hey – we’ll see, but the history here is not exactly, er, supportive and it still needs to prove the “key growth initiatives” are a sustainable proposition. With also “exploring new funding arrangements”, ahead of an outcome of that and of the results detail scheduled for October, I’ll certainly be continuing to avoid.
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