For the first half of the year things did not go well for the high street retailer. By the start of July it was trading at an all-time low of just 18.6p – that’s a near 69% decline from its opening price of 59.5p (not to mention the fact that in mid-2016 it was trading at £1). Since then, however, the stock has bounced from that nadir, with GAME Digital now at a current trading price of 38.13p.
Good news was thing on the ground during those opening 6 months. January’s post-Christmas update saw gross transaction value drop 6.3% in H1 – and 18.3% in the UK – teeing up a 26.7% slide in interim pre-tax profit at the end of March. There was one bright spot in that latter statement, however, with sales jumping since the end of the half year thanks to the release of the Nintendo Switch.
Interesting it was the Switch that caused GAME to take a hammering at the end of June, with the stock plunging a stomach-churning 36.8% after it was forced to issue a profit warning. GAME stated earnings would be ‘substantially below previous expectations’ due to an insufficient supply of the Nintendo Switch and a sub-par selection of new games releases impacting sales of the Xbox and PlayStation consoles.
However, as mentioned, things began to pick up from this point (admittedly, they couldn’t have really got much worse). First was the news that bargain-hunter Mike Ashley had bought a 25% stake in the company through Sports Direct (LON:SPD), information that sent the stock 22% higher.
Then GAME produced its own life-saver in the form of August trading’s update. The stock rocketed 34.5% on the day of the statement as the retailer revealed second half UK sales had jumped 9% in the UK (still down 7% for the full year) and 26% in Spain thanks to the continued demand for the Switch. That Spanish surge helped GAME eke out a 0.1% rise in annual retail sales, which really isn’t bad given how things were looking earlier in the year. It also announced it would be focusing ‘management and capital resources on the acceleration of the development of the esports and live gaming initiatives’ in order to take advantage of that rapidly-expanding market.
In terms of Wednesday’s annual report, the reaction will be dependent on just how weak its full year profit figures are. Investors will also want an update on its potentially Switch-boosted Christmas outlook, alongside further details about its esports intentions.
GAME Digital PLC has a consensus rating of ‘Hold’ with an average target price of 23.5p.
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