Turkey of the week specialist retailer at the top of a cycle – MoneyWeek

SinceitsacquisitionofGameStationin2007,GamehasbeenEuropesbiggestspecialistretailerofcomputerandvideogames。

Ithas1,229storesandplanstoopen60morebeforeChristmas。

Lastweek,inabullishtradingstatement,thecompanyreportedlike-for-likesalesrising24。

8%forthe22weekstotheendofJune。

TheseweredrivenbywhatCEOLisaMorgandescribedasanunprecedentednumberoftriple-Asoftwarelaunches,suchasMarioKartandWiiFit–allinaperiodthatwouldnormallybeaquiettimeinourindustry。

Clearlythiswasanimpressiveperformance,butwillitcontinue?

Thebullsseemtodeludethemselvesthateveninarecessionpunterswillkeepbuyingindroves。

Clearly,aneveningplayingonthevideoconsoleischeaperthangoingtoacinemaorpub,butstill,inthiscut-throatretailenvironment(presentlyseeingmorehigh-streetcasualtiesthanyougetintopcombatgameGrandTheftAutoIV),howcanGamekeepbuckingthetrend?

AddinthefactthatPCgamesarebynaturecyclical,andthatGameappearstobeat–orverynear–thetopofitscycleandIjustdontthinkcash-strappedfamilieswillcontinuetopileintoitsshops,evenastheyslashalltheirdiscretionaryspending。

ItalsoseemsanoddchoicetokeepopeningexpensivenewshopsatatimewhenCDs,DVDs,booksandevensoftwareareincreasinglybeingboughtonline。

Downloadinggamesisnotcurrentlyaspopularasdownloadingmusic,asfilesizesarelargerforgames。

However,asbroadbandspeedsimproveandmorecompressionsoftwareisused,theresnoreasonwhythisshouldntchange。

Andifitdoes,Gamewillbeleftontheshelfwithalargefixed-costbasegeneratingsteadilylowerrevenues。

Andthiswillhappenjustascompetitionhotsup,withtraditionalretailersbeingjoinedinthismarketbythelikesofAmazon,Play。

com,supermarketsandEbay。

Itsnotaprettypicture。

TheCityexpectssalesandunderlyingearningspershareof£1。

7bnand20。

7prespectivelyforthisyear,flatteningoffto£1。

8bnand12。

6pin2009。

Hencethestocktradesonforwardp/emultiplesof12–thatstoohighinlightofthechallengesahead。

Tomymind,afteratriplingofthesharepriceoverthepasttwoyears,itstimeforloyalshareholderstobanksomegains,asexistinggrowthlooksunsustainable。

Recommendation:SELLat253p



PaulHillalsorunsashare-tippingservice,PrecisionGuidedInvestments。

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