Game issues bank covenant warning

Video games retailer Game warned today that it is set to breach a banking agreement after a dismal Christmas capped an "incredibly tough" year for the industry.

The group, which has 1,300 stores worldwide trading under the Game and Gamestation brands, said that, given difficult market conditions, it will not meet a banking covenant - a promise made to creditors to secure a loan - when it is tested at the end of February.

Game added that it is in "regular and constructive" talks with its lenders, who remain supportive.

The warning comes after the group recorded a 12.9% decline in like-for-like sales in the eight weeks to January 7 and a 10% drop in the 49 weeks to January 7, as a lack of new consoles and a squeeze in consumer spending hit the business and wider market.

Game chief executive Ian Shepherd said: "Our industry had an incredibly tough 2011, and so did we."

Game, which has 610 stores in the UK and Ireland, saw its share value plunge more than 24% following today's update.

The group slashed prices in a bid to draw in customers and warned this had hit gross margins over Christmas.

Despite the weak performance, Game still outperformed the overall games market, which was down 13.1% for the 49-week period, compared with its own 10% decline.

The company is hoping that the launch of two new handheld consoles this year - the PlayStation Vita and Nintendo Wii U - will boost sales in 2012 after a dry patch for new hardware.

Mr Shepherd added: "We are adapting to the changing market and are well-prepared for the next hardware cycle."

Game's strategic review is making progress with 39 stores closed this year and the company is on track to have around 550 stores in the UK by 2013.

Mark Photiades, analyst at Singer Capital, said he expects consensus forecasts for full year pre-tax losses to increase from around £12 million to £25 million to £30 million, compared with a £37 million pre-tax profit the previous year.

He said: "Rumours of a new console cycle offer a glimmer of hope but at this stage it is just speculation."

PA