Game Digital (LSE: GMD) has a pretty poor record of trading in the important Christmas period. After a bad Christmas 2011, its predecessor company went into administration a couple of months later.
The business was salvaged by private equity and refloated at 200p a share in the summer of 2014. The shares climbed to 348p before collapsing 30% when a bad Christmas that year produced a profit warning in January. Christmas 2015 was even worse, with a profit warning coming the day before Christmas Eve, sending the shares crashing 38% to 128p. Finally, trading last festive season wasn’t particularly good but by then shares had declined to sub-60p.
Game made a loss for its financial year ended July 2017 and analysts are forecasting another loss for the current financial year, despite the arrival of the Xbox One X console in November and a stronger slate of new titles than last year. The shares are still trading at sub-60p and the balance sheet boasts net cash, but this is a stock I’m continuing to avoid.
Toddling nowhere fast
At 70p, shares of Mothercare (LSE: MTC) are at around the same level today as at the dawn of the century. They’ve traded a good deal higher at times during the intervening period, but the company keeps heading back to square one as it tries to find a strategy for sustainable growth in a changing retail market.
Its shares tumbled over 18% last month when it reported it had swung to a loss in the 28 weeks to 7 October. It advised that international markets were challenging during the period and continue to be so. Furthermore, towards the end of the reporting period, and in subsequent weeks, it’s seen a softening in the UK market with lower footfall and spend.
More positively, management said: “We are on track with our transformation plans … We continue to invest and make progress, developing the Mothercare brand into a digitally led, global specialist.” Is the company on the cusp of a new era of sustainable growth and shareholder returns? I can only say I’ll believe it when I see it. As trading currently stands, and with net debt also having more than doubled over the last 12 months, Mothercare is firmly on my list of stocks to avoid.
Christmas trading could be telling
Like the baby and parenting specialist, department stores group Debenhams (LSE: DEB) is also struggling to adapt to changing shopping habits. In its results for its financial year ended 2 September, the company reported a 17% decline in underlying profit before tax to £95m, while the statutory number was 44% down at £59m.
The company said: “We have made good progress in setting the foundations for our new strategy, Debenhams Redesigned.” The costs of this (£36m) were responsible for the large fall in statutory profit and the company has said there will be further transformation costs (£20m) in the current financial year. It said it also expects net debt to rise to between £280m and £300m from the last reported £276m.
I’m a long way from being convinced by Debenhams’ transformation strategy and Christmas trading could be telling. I’m avoiding the stock, as it continues to look dangerously overvalued to me.