Shares in Game Digital plunged by more than 40 per cent on Wednesday morning as markets reacted to a profit warning issued on Tuesday night by the high street video games retailer following heavy discounting over the Christmas period.
The warning, issued just after 5pm on Tuesday after London markets had closed, blamed "intense competition" in December as the retailer cautioned that underlying growth in earnings before interest, tax, depreciation and amortisation for the full year was likely to be broadly flat at £51.3m. Analysts were previously forecasting full year ebitda of £63.7m, according to Bloomberg.
Martyn Gibbs, chief executive, said the retailer had discounted from Black Friday and throughout the Christmas trading period in order to increase its customer base. Volumes rose 25 per cent for the 11 weeks to January 10, but group sales fell 5.4 per cent to £369.3m on a constant currency basis, faster than the 3 per cent decline in the overall market, the company said.
"We now have a huge customer base within the new formats, to sell both mint and pre-owned physical and digital content and accessories to over the long term," said Mr Gibbs.
Nick Bubb, the independent retail analyst, said he was "astonished" to see the evening announcement from the retailer, and added: "The nub of the problem is that Christmas was very competitive."
The retailer, previously known as Game Group, went bankrupt two years ago, but in November reported that its first-quarter revenues had jumped 17 per cent. In 2012 it was bought out by an entity acting on behalf of Elliott Advisors, the activist hedge fund and returned to the London Stock Exchange last year.
Game is not the first retailer to have suffered from the surge in discounting this Christmas. Last week shares in Boohoo.com fell 40 per cent after the online clothing retailer said the rate of sales growth had halved from 50 per cent in the second quarter to 25 per cent in the four months to December 31.
Game's sales for the first half of the financial year were up 1.9 per cent to £558.9m on a constant currency basis, but the company said it expected sales growth in the second half due to the "good schedule" of new games releases.
Before the announcement, shares in Game Digital had risen 74 per cent to 348p since the company floated at 200p a share in June. In early trading in London, shares were trading at 212p.
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