Janco Partners' Mike Hickey sees a difficult road ahead for UK-headquartered game retailer Game Group, saying the company is "highly unlikely" to meet growth goals of 2 to 5 percent for the current fiscal year, ending next January.
The analyst sees Game Group as a victim of increased competition in pricing and pre-owned sales in the game retail sector, as well as "a punishing UK retail/consumer environment" and an increased value-added tax that will impact the wider economy.
The group, which operates stores under the Game and Gamestation brands, is also subject to a general contraction in game retail and particularly hurt by a failure to thus far develop an identifiable "compelling long term digital strategy," Hickey said.
"Continued growth from online digital sales will pressure gross margin," Hickey predicted, adding that continuing clearance pricing on many new titles would also hurt the group's bottom line. The one bright spot was pre-owned titles, which Hickey predicts will continue to see growth in the coming year.
Hickey notes that GAME Group closed 38 stores in the UK in the last fiscal year, with an additional 15 UK store closures in the last quarter. The Group is targeting a goal of 550 stores across the UK, down from 641 currently open, according to the group's web site.
GAME also closed 25 stores in Australia over fiscal 2011 and expects to close anywhere from 5 to 15 stores in France and Scandinavia in the current fiscal period. The chain hopes to expand in Spain, Portugal and the Czech Republic, however, opening ten stores this year.
Yesterday, Game Group announced
profits for fiscal 2011 were down 84.2 percent from the year before on a revenue drop of 8.3 percent.