LONDON (Thomson Financial) - Game Group Plc., the computer games retailer,
reported a 156 percent increase in underlying pretax profit and described
trading in the current year as "strong".
The news sent its shares over 7 percent higher as analysts upgraded earnings
forecasts for the current year. At 10:44 a.m., they were trading at 271.25
pence, up 19 pence.
Pretax profit before non-recurring costs for the year to end-Jan came in at
75.5 million pounds, compared with 29.5 million the year before.
In its March trading statement, the group said it expected to make a full
year pretax profit of "not less than 74 million pounds".
Sales increased by 86 percent to 1.49 billion pounds, from 801 million the
year before, incorporating a like-for-like increase of 41.2 percent.
The group opened 116 new stores overseas during the year bringing its total
international stores to 512 including franchises. International operating
profits more than doubled to 13.2 million pounds from 6.1 million.
Game acquired the rival Gamestation chain last May for 74 million pounds,
and has integrated its 217 stores, bringing the total number of stores in the UK
to 649.
"With a large and growing installed base of hardware in the market, a strong
line-up of new software launches and the benefits of full year ownership of
Gamestation in prospect, the board remains very confident in the outlook for the
53 weeks to Jan. 31, 2009," said chairman Peter Lewis.
Gross margin declined to 24.8 percent from 27.2, due to the increased
participation of hardware in the sales mix, the acquisition of Gamestation, with
its lower margin operating mode, and the participation from Game's overseas
businesses.
Capital expenditure for the year was 40 million pounds.
In the first thirteen weeks of the current year, Game said group
like-for-like sales were up 20.1 percent, despite Playstation 3 having launched
in the comparative period last year. Total sales were up 64.3 percent.
In the UK and Ireland, like-for-like sales were up by 25.6 percent with
total sales increasing by 78.6 percent.
In the international business, like-for-like sales grew by 8.8 percent with
total sales increasing by 34.3 percent.
Game had previously guided towards full year group like-for-like growth of
5-10 percent and finance director David Thomas told reporters that target
remains in place.
"We recognise our first quarter performance has been very strong but there's
still a lot of the year to go and we're not going to be revising that guidance,"
he said.
Thomas pointed out that the second half accounts for between 60-65 percent
of the group's sales, while 40 percent is generated from the Christmas period
alone.
"The software line up is not yet set for the second half. Last year, we
experienced some issues in regard to hardware availability so I think we're
taking a cautious outlook in respect to the balance of the year," he said.
Chief executive Lisa Morgan said the group had been "delighted" by the early
performance of the Nintendo Wii Fit, which was launched last Friday, pointing to
industry data which suggests over 200,000 units were sold last weekend.
She also highlighted Tuesday's release of Grand Theft Auto IV, which she
said is expected to break industry records.
Game anticipates that gross margin will improve by 50 to 100 basis points
this year, driven by purchasing synergies and a slightly reduced hardware
participation in the sales mix.
The integration of Gamestation is expected to result in revenue and cost
synergies of 7 million pounds this year.
Game is targeting around 100 new store openings this year, with the key
focus being on France, Spain, and Australia.
The group is increasing its final dividend payment by 79 percent to 2.97
pence per share, giving a full year dividend of 4.4 pence, up 50 percent.
Nick Bubb of Pali International upgraded his full year pretax profit
forecast to 100 million pounds from 85/86 million previously. Bubb said Game's
price/earnings (PE) ratio looks "way too low on that basis, for such a growth
stock".
Bubb, who pointed out that GameStop, the U.S. market leader trades at a PE
of 24x, reckons shares in Game "have a 300 pence look about them".
ABN Amro analyst Simon Davies upgraded the stock to 'add' from 'hold'. He
forecasts the group will produce a "very strong H1 performance, which will drive
upgrades" and expects to upgrade his pretax profit forecast for the current year
to 103.7 million pounds from 95.1 million.
Robert Brent of KBC Peel Hunt upgraded his pretax profit forecast for the
current year to 90 million pounds from 84 million.
Dresdner Kleinwort was more negative, keeping a 'sell' recommendation and
175 pence price target.
"Our concern is that, as the likes of HMV, Woolworths, and the supermarkets
gain traction in the games market, price competition will increase," it said.
matthew.scuffham@thomsonreuters.com
msc/msc/jag
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