Game Digital slides after profit warning

Shares in video games retailer Game Digital tanked on Friday after it cautioned that full-year profit will be "substantially" below previous expectations due challenging trading conditions, low supplies of the Nintendo Switch in the UK and softness in its core Xbox and PayStation markets.

The company said that while consumer demand for the Nintendo Switch has been and remains very strong, the level of supply to the UK market has been lower than expected.

"These lower levels, combined with the continued softness in our core Xbox and PlayStation markets, have impacted sales," Game said, adding that it still expects to deliver positive gross transaction value growth in the second half of around 5% to 6%, although this is below its previous expectations.

As a result, it now expects adjusted earnings before interest, tax, depreciation and amortisation for the full year to be well below previous expectations.

"Looking forward, we continue to be encouraged by the positive consumer reception of Nintendo Switch in both of our geographic markets. This demand is helping to strengthen the outlook for our next financial year and we expect to benefit from both greater Nintendo Switch hardware supply as well as the strong interest that is building for Microsoft's new Xbox One X console.

"Furthermore, we expect to see growth returning to the UK and Spanish software markets in our next financial year, benefiting from a stronger line up of new releases on Xbox, PlayStation and Nintendo."

Canaccord Genuity said: "We think the implication is for a consensus downgrade from EBITDA of circa £20m towards £8m, equating to a pre-tax loss of circa £4m."

Independent retail analyst Nick Bubb pointed out that the share price has been notably weak again of late "and so it is perhaps no great surprise to see the embattled business issue yet another profit warning":

"The company makes more bullish noises about prospects for the next financial year, but the jaundiced City will no doubt take this with a large pinch of salt, particularly as the company refers to the fact that 'the group is exploring new funding arrangements to enable an acceleration of the roll-out of the new in-store gaming initiative".

At 0935 BST, the shares were down 29% to 23.50p.