Games Workshop Profit Warning

Yesterday GW issued a profit warning to the London stock market. This is basically saying, we told you what we expected to make (because as a publicly traded company they publish such things), you bought our stock on that basis and we just realised we're not going to hit our targets. The stock proceeded to drop 15% and some analysts (effectively stock pickers who publish high priced newsletters) downgraded their advice on the stock from "hold" to "sell" which will probably have longer term impact on the GW share price (the analysts, by the way, are likely experts on retailing rather than games, games isn't big enough to be a category).

Ultimately, the management at GW answer to their shareholders, and they're going to have to come up with a plan to fix things or else the shareholders (typically dominated by "institutional" investors like pension funds and banks, rather than being a large mob of people with pitchforks and one share each) will want new management. As a public company they're measured on profit, so the answers are to sell more stuff (assuming it's profitable) or to cut costs. GW's "plan" (I put this in inverted commas since I'm sure there's more to it), in their statement, is to open more retail outlets and introduce more people to their games.

The blame, by the way, has been placed squarely on the Lord of the Rings, and a fall-off in interest in the associated games. This doesn't mean the LotR games are a disaster, just that they're not making as much money as they used to make (these crises and judgements are based on the likelihood of whether the company can continue to grow and justify a premium on its price, not whether it's likely to lose money and go bust). Unfortunately for GW, this provides a great angle for journalists and as an example the Independent business pages have a great picture of a Mumak and some infantry miniatures.

In fact, GW is still making a profit, albeit barely - £119,000 for the first half of 2005 (their profits for 2004 were £7.7m). Sales for the second 6 months of 2005 up to November, were £57.1m, down 20% . Unfortunately, those shifts are big enough to attract news.

I guess a bunch of people will see this as a well-deserved poke in the eye for the "evil empire". Personally I like to see GW, given their sponsorship of some great models and some great games, do well and I hope they can turn it round without damaging "the hobby" through mass cost-cutting and more price rises. The stuff about more retail outlets makes me think they're still more obsessed with price protection than with selling more stuff, though.

By the way, the Reuters article linked at the top of this post lists GW's portfolio (in addition to LotR) as "the classic Warhammer, the simply-titled Epic and other games including Battlefleet Gothic, Blood Bowl, Inquisitor, Necromunda and Warmaster". Given that the journalist is also probably a retail expert rather than a games enthusiast, he probably got this from a publicity pack somewhere. The mention of the "specialist/fanatic" games may just reflect their files being out of date, or maybe someone in GW marketing realises their game portfolio is really a bit too small for a company their size? If the analyst community realised that they actually depend on 3 games, 2 of which are called Warhammer, then they might realise that a significant shift in one of them (by all accounts the most successful) is going to seriously destabilise the business.