GAME Digital PLC (LON:GMD) shares levelled up in early deals on Thursday after the video game retailer reported a jump in first-half profits despite falling revenues.
The FTSE Fledgling firm reported a pre-tax profit of £14.8mln for the period, 20.3% higher than a year ago, while revenues fell 4.7% to £492.9mln.
GAME’s gross transaction value (GTV), the measure of its full retail sales, declined slightly by 1.4% to £578.4mln, while its gross profit rate had remained steady at 21% of GTV.
Adjusted earnings (EBITDA) rose 21.7% to £25.8mln as a 20.6% upswing in the company’s core retail EBITDA offset a £1.1mln loss for its events and e-sports arm.
The group also axed its interim dividend after paying out 1.7p per share a year ago.
Martyn Gibbs, chief executive, said that exclusives on new game releases, sales growth in higher margin categories, and a focus on the group’s multichannel and specialist offerings had all helped offset a weaker console hardware market in the period as well as a “continued structural decline” in the preowned market.
He added that the group’s UK retail division had delivered “considerable cost savings” in the period, with ongoing rent reductions anticipated across its lease estate.
Looking ahead, GAME said “economic uncertainty and weakening consumer confidence” would make for a challenging retail sector over the coming months, with the console cycle likely to lead to a decline in “low margin” console sales.
However, the firm said while the headwinds were expected to affect its performance in the near term, they were “confident” on the longer-term growth prospects.
GAME is currently in the middle of a turnaround strategy that is aiming to diversify away from a pure retail offering and into the events and e-sports space, which includes a rollout of BELONG, bookable arenas where gamers can play on various platforms.
Corporate broker says first-half earnings “solid”
In a note to clients, GAME’s corporate broker Liberum said EBITDA growth in the first half had been “solid”, although they reduced their forecasts for the full year to 2021 by 13-15% on the back of “softer market conditions“ at the start of the second half and a slower than expected roll out of the BELONG arenas.
“The latter’s impact on profits is disappointing, although the benefit could be better rent deals on new openings if current property market conditions continue”, analysts said.
“In the meantime, management continues to develop the retail proposition and it is executing well on the planned cost savings initiatives, including rationalising the UK store base, with further opportunities to realise rent savings ahead.”
Shares were up 5.6% at 28.1p.