European Retailer GAME's Profits Drop 80%

Representatives from leading British and European games retailer GAME have announced that that the company’s full year profits have fallen by over 80 percent for its just-ended full financial year, showing the poor retail nature of a game industry currently in hardware transition mode. Profits for the full year for the firm, which has 700 owned and franchised stores in Europe, and opened 23 stores in the UK and 81 in Continental European markets during the year, fell from £20.0 million ($35.8m) to just £8.4 million ($15.0m) in the twelve months ending January 31st, 2006. At the same time, though, the company's revenue increased from £576.6 million ($1.03bn) to £645.1 million ($1.15bn). The company had previously issued a profits warning in November of last year with the final results being towards the bottom end of predictions. As with other retailers from around the world, the drawn-out end of the current generation of consoles was blamed for the poor results, specifically the falling price of software on current formats. "This was an immensely difficult transitional year and it is disappointing to report such a sharp drop in profits," commented chairman Peter Lewis. Lewis also noted that 2005 had a more positive ending in terms of revenue, however, commenting: "The availability of hardware and software on the Sony PSP and Microsoft Xbox 360 from December saw the Group finish the year very strongly and for the year as a whole like-for-like ("lfl") sales increased by 4.2% and total sales increased by 11.9%." Nonetheless, the reasons for GAME's revenue increase but profit decrease was very clearly explained: "This very creditable sales performance was offset by a reduction in gross profit margin... to 27.0% primarily as a result of cyclical deflation in software selling prices, pricing pressure on older formats and the increased proportion of hardware in the sales mix, driven by the new formats of Nintendo DS, PSP and Xbox 360." The results are likely to increase speculation of a possible takeover, however, with British trade paper MCV reporting that CEO Martin Long is currently refusing to comment on whether the company has received a new offer.