Filing: Game Station a Money-Losing Growth Vehicle7 May, 2007 By: Erik Gruenwedel
Blockbuster Inc.'s sale last week of its 217-store U.K.-based Game Station franchise to European-based PC and video game retailer The Game Group for $151.2 million would appear to have been an exercise in prudent economics.
The London-based retailer lost $300,000 from continuing operations on revenue of $379.6 million in fiscal year 2006 (ended Dec. 31), according to a securities and exchange filing.
Game Station posted a $3.9 million loss from continuing operations on revenue of $296.3 million in 2005 and profit of $5.8 million on revenue of $255.9 million in 2004.
In reality, Game Station was flourishing due to a booming video game market in the United Kingdom, said Edward Woo, analyst with Wedbush Morgan Securities in Los Angeles.
Woo said the financials could be misleading since Blockbuster was reinvesting much of Game Station's revenue into growing the business, including store openings.
Indeed, the segment's annual gross profit had steadily risen from $67.6 million in 2004, to $73.1 million in 2005 and $88.3 million last year.
“This business was rapidly expanding — that's why there were the losses,” said Woo. “The net loss from continuing operations is not a full indicator of the state of the business.”
Regardless, Woo said Blockbuster opted to jettison Game Station in an effort to restructure its global assets, put money in the bank and focus on Total Access, its online rental, in-store return movie service.
“The Game Group is probably in a better position because their hope is about growth in the U.K. and that is what they are focused on,” Woo said.