Shares in Game Digital PLC (LON:GMD) plummeted this morning after it warned that full-year profits are likely to come in “substantially below previous expectations” as challenging trading conditions in its key UK market have shown no signs of relenting.
The high street retailer expected the going to be tough in the second half of this year, but said that the “continued softness” in PlayStation and Xbox sales has impacted its performance.
Nintendow Switch sales 'encouraging', but supply poor
Back in its interim results in March, GAME hinted that the new Nintendo Switch, which can be played both at home and on-the-go, could be its saving grace in 2017.
Sales of the gaming console have been “very strong” since its launch but the company hasn’t been able to get its hands on enough of them, with the level of supply to the UK market lower-than-expected.
“These lower levels, combined with the continued softness in our core Xbox and PlayStation markets, have impacted sales,” said GAME in this morning’s trading update.
“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 [underlying earnings] for the full year to be substantially below previous expectations.”
New Xbox to be the key for next year
The video games market is a cyclical one that ramps up when new consoles are released and subsequently slows down when keen gamers have already snapped up the latest PlayStation or Xbox.
Thankfully for GAME, the latest Xbox console – the Xbox One X – is launching towards the end of this year and it expects to benefit from the “strong interest” which is already been shown by customers.
That, along with a stronger line up of releases slated for next year and the encouraging demand for the Nintendo Switch, should see growth return to the UK and Spanish software markets next year, the retailer said.
The company has also been “encouraged” by the response to its in-store gaming arenas – of which there are currently 12 – and is exploring funding arrangements that would allow it to add more.
Full year results for the year to 29 July will be announced in October.
Shares sank 28.8% to 23.5p in early deals on Friday.
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