Game profits plummet but digital sales increase

Game Digital has reported a drop in pre-tax profits of 84%, but digital content sales and future releases provide hope for the retailer.

Group revenue dropped 6.2% to £882.5 million for the 52 weeks ending 30 July 2016, while adjusted EBITDA also decreased 42% to £28 million, in-line with market expectations impacted by the challenging UK console market.

Game significantly upgraded its UK eCommerce and mCommerce sites over the last year, which the retailer said has led to an 80 basis point increase in its online share of the video games market. It also launched a click & collect service which is particularly important to customers around major sales events and launches. Looking forward, the retailer plans to prioritise improvements to online content and customer journeys, while a major upgrade is being worked on to update the UK mobile app.

Revenue from its events, eSports and digital channels increased 45.2% over the year to £6.1 million while the division recorded an adjusted EBITDA loss of £3.1 million. Revenue from digital content increased 15% to £110.2 million.

"The Group continues to maintain strong customer engagement across the UK and Spain and has made further progress in driving its retail diversification plans, including strong performances in digital content, higher margin accessories, and preowned phones and tablets," said CEO, Martyn Gibbs. "In addition, we have achieved significant progress across our strategic growth initiatives, including eSports, events, live gaming activities and digital services."

Gibbs said the market dynamics in the UK have "undoubtedly been tough in the past year". But he said the retailer has made significant progress with its strategic plan since January, including improving supplier arrangements and terms, implementing efficiency and cost saving initiatives; completing an organisation redesign and other process improvements. The retailer said it achieved around £4 million of cost savings since implementing to UK action plan in January.

A big part of the reviewed strategy was to continue to develop Game's multichannel business by enhancing its highly differentiated customer and gaming proposition and developing new categories and services, while optimising the retailer's store estate.

Over the summer, Game Digital opened its first in-store eSports and competitive gaming zone to engage with this specific customer base.

Launched in the retailer's Manchester Trafford Centre store, the space includes ten Overclockers gaming PCs and a virtual reality (VR) pod, encouraging consumers to visit the shop and engage with the latest games and video game technology. Publisher partners can also use the zone to put on community events and promote the latest releases, while participating gamers will be able to compete in leagues or take part in "retro arcade" high score challenges. The retailer is planning to roll out this store format following positive feedback from customers.

Meanwhile, customer engagement across both the UK and Spain increased, with 1.2 million new customers signing up to the retailer's loyalty programme, bringing the total to 4.5 million. Next year, the retailer plans to launch an enhanced reward programme for the most valuable customers to drive increased loyalty and sales.

Gibbs continued: "We recognise that we need to continue to reposition and transform the business. We have a clear vision to build a company that combines multichannel retail, live gaming and digital services to deliver a highly compelling and unique combination of products and services for gamers. This planning is being implemented quickly across the business with further expansion and development of new and growing activities as well as trialling new concepts such as in-store gaming arenas."

The retailer said it is encouraged by the games, consoles and virtual reality launches in the pipeline, but it expects Adjusted EBITDA for FY16/17 to be broadly level to the current year.

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