Game Digital profits slump as it eyes e-sports boost
The company wants to shift the business away from low-margin retail sales and towards high-margin gaming experiences.
Profits at Game Digital have sunk by more than a quarter as the retailer looks to revive its fortunes through the fast-rising e-sports market.
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Pre-tax profits dropped 26% to £12.3 million for the 26 weeks ending January 27, as it made less from sales of second-hand video games.
Game said efforts to shift the business away from low-margin retail sales and towards high-margin gaming experiences – or e-sports- were gaining traction after striking a deal with Mike Ashley’s Sports Direct in February.
The move will see Game launch 100 Belong e-sports arenas within three years, some of which will be set up in Sports Direct stores.
So-called e-sports involve professional gamers battling it out in front of crowds at events such as Insomnia.
Mr Ashley, who already owns 26% of Game, has stumped up £3.2 million for a 50% stake in Belong and will share 50% of the unit’s profits.
Game chief executive Martyn Gibbs said: “The traditional retail landscape is under increasing pressure and we have developed a strong growth strategy to utilise the valuable components of our core business in building our new experience-based gaming offer.”
Half-year revenues pushed 4% higher to £517.4 million, bolstered by strong demand for the Nintendo Switch video game console.
While UK sales slipped 0.3% to £365.5 million over the period, the fall was offset by a 16% rise in the events, e-sports and digital business to £8.9 million.
The retailer also made further progress in shoring up its balance sheet, securing £5 million in cost savings by closing stores and tweaking staff working hours.
Game, which has 560 shops across the UK and Spain, said it would look to strip out more costs in the second half of the year as it anticipates a tough market for consoles.
Shares were up more than 2% in morning trading, with the firm also confirming that Martin Hopcroft had joined as chief financial officer.
The group said it would suspend its interim dividend in order to drive further investment into Belong.
Paul Hickman, analyst at Edison Investment Research, said: “The proposed expansion of the Belong concept should help to free the company from the cyclical trends in the gaming products industry, and bring it closer to its future identity as a service-based business providing gaming experiences.”