GAME Digital Is In Trouble As Profits Warning Issued

Retailer Game Digital issued a Black Friday profits warning today after selling too many Xbox One and Playstation 4 consoles.

Game said its strategy to sell more consoles for lower cost - in order to build 'lifetime value' for its business - had hurt its bottom line.

Essentially, it sold too much stuff, for too little.

The video games business said while volumes were up strongly in the UK, group sales for the Christmas period covering the 11 weeks to January 10 were 5.4% lower.

It said lower than expected margins on its consoles meant earnings for the year to August 1 were now expected to be flat on last year's £51.3 million, well below City expectations of £63.8 million.

The retailer said it lured customers in with promotions, starting on Black Friday at the end of November, in which games were bundled together with consoles - amid "intense competition" in the sector.

But the hit to profits resulted in tonight's warning, coming seven months after Game's stock market float in June this year and nearly three years after it was rescued from administration in April 2012.

In October last year it reported that it had swung to an annual profit after making a loss the year before.

Today, the group said its offers helped hardware volumes in the UK grow by 25.1%, with a large chunk of consoles sold in the four-day period from Black Friday to Cyber Monday.

But it added: "Unprecedented promotional activity has also driven a faster than expected fall in the average selling prices of hardware as well as a greater prevalence of software 'bundling' leading to lower market value growth than unit growth."

Game said it had exceeded market expectations on the volume of "next generation" consoles installed in the UK and in Spain, now at more than four million.

Chief executive Martyn Gibbs said the strategy to "grow customer lifetime value" saw it invest in margin over Christmas, starting from Black Friday "to recruit as many new generation customers as quickly as possible".

"We now have a huge customer base within the new formats, to sell both mint and preowned physical and digital content and accessories to over the long term."

Game reports half-year results for the six months to January 24 on March 24.