GAME's Shares Sink as Holiday Sales Underperform

Shares in UK retailer GAME tumbled by nearly 40 percent on Wednesday, after the corporation warned it would miss profit targets.

The country's biggest brick-and-mortar retailer, which survived administration in 2012 thanks to a last-gasp buyout, said sales during the most crucial shopping period of the year have underperformed.

In a memo to investors, GAME said it was struggling to meet financial targets due to "recent trends and disappointing sales since the start of school Christmas holidays."

Its chief executive, Martyn Gibbs, added: "The trading conditions in the UK video games market have been challenging."

For the 21 weeks ending December 19, the retailer made £353.5 million in sales, which is down by about 11 percent when compared to the same period last year. It now expects that, by week 26, its operating profit will be about £30 million (down by about £16 million when compared to last year).

Old-gen "Slowdown"

Investors have reacted sharply to the news. At the time of publication, shares in GAME have fallen 39 percent.

The retailer said the missed target was partially due to last-gen hardware and software sales, which it claims has fallen faster than expected.

During the 21-week period so far, money from PS4 and Xbox One hardware and software reached £114 million, which is up by around £19 million. However, the same revenue from PS3 and Xbox 360 fell by more than half; down from £54 million to £23 million.

Gibbs said: "The trading conditions in the UK video games market have been challenging. The switch over from the older gaming formats to PlayStation 4 and Xbox One software has impacted profitability across the UK market."

Shopping centre footfall across towns and cities in the UK has been lower than expected, he added.

Gibbs concluded: "The pre-Christmas period and the winter sale are very important to our customers and with market leading offers we remain well prepared in our stores and online for the remaining peak trading period."

"Warning Signs"

It is unclear how much of GAME's underperformance reflects the games industry as a whole.

The PlayStation 4, at its current pace, is on track to become Sony's most successful games platform of all time.

PlayStation group chief executive Andrew House recently said it had "just seen the most successful Black Friday in the company's history."

"Rumours of the demise of the console have been greatly exaggerated," he claimed.

However, US retailer GameStop recently said that sales of some of the biggest triple-A games of the year--Halo 5, Star Wars Battlefront, and Assassin's Creed Syndicate--have underperformed.

Patrick O'Brien, retail analyst at Verdict, told the BBC that GAME's comments were a "big warning sign about the role of the console cycle".

Analysts at Liberum added: "UK sales have fallen off sharply in the past few weeks at the most critical time of year for GAME. While a decline in old format sales was expected, the scale has surprised the company while the importance of Christmas trading has hugely magnified the issue."