The fat lady is limbering up after a horrible Christmas at the video-game retailer.
Game Group (LSE: GMG) needed a good Christmas period to bring in some cash and keep it afloat, after seeing its market steadily being taken from it by online sales, supermarkets and other general retailers. But rather than the wolves, it seems like it was the customers who have been kept from the door.
Festive season business was, frankly, dreadful. After a 13% fall in like-for-like sales for the eight weeks ending 7 January, Game has had to warn that it is likely to be in breach of its banking covenants.
The drop in sales, which is considerably worse than the 7% the company forecast as recently as November, has led to a rush to sell the shares. They're down 18% to just 3p on the day, which comes after a massive sell-off yesterday that sent them plunging from 6p to 3.8p. The shares have lost more than 90% of their value over the past 12 months.
Banking tests
Two of Game's banking covenants are up for testing on 27 February and, with a pre-tax loss for the full year expected, those tests now look likely to fail. With a current credit facility of £145m and around £120m cash expected to be on the books at its year-end, Game shareholders will be hoping some new facilities can be arranged.
But that, surely, would only be delaying the inevitable unless Game can come up with a last-minute plan to radically alter its business.
The market for specialist retailers has been steadily drying up over the years, as the big supermarkets and online businesses use their buying power and lower overheads to beat them on price and convenience, and Game has been slow to respond.
With an estimated annual rental bill of around £80m, Game simply has too many stores, and those not bringing in enough cash need to be closed. There are over 1,200 stores worldwide, with about half of those in the UK, of which there are plans to close 50 by 2013.
But with the next generation of games consoles not expected to be ready before then, that could well be too little too late.
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