Network News: 2016 July GW Market Watch & Annual Report


Network News is rated: trending land of make believe importance for this blog

Watching stocks over the short-term is often an experiment in futility. On June 1st 2016 we looked back at the state of Games Workshop’s stock price and general financial health…

After it was announced earlier that Games Workshop financial report would show growth, it was now about the details and how pretty a picture CEO Kevin Roundtree could paint for the company. As you will see the initial announcement in June didn’t have much effect on the stock price, as British investors were probably dealing with more pressing Brexit issues. Besides smart investors want to see details, not vague messages sent out by CEOs, so it wasn’t until the real report was released on July 26th that we saw some interesting action from the stock.

To see what kind of action I am talking about take a look at Games Workshop stock for July, especially following the report release.

The stock as you can see was puttering along until the annual report, bringing it over 10% for the month! How much of a dent did this give to the overall stock health? Well let us look at where it stands for the year to date.

The stock for the year is still well under, the whole “Christmas sales were not so good” mentioned back in January really tanked the stock, and if the current up trends hold a total recovery  won’t happen until the end of the year. As it is the stock is still down almost 20% from the start of the year.

If you want more discussion about the current report head over to this Dakkdakka thread. If you want some real investment analysis here is a good article about the current state of Games Workshop.

As for what I personally think, I looked at more than just the hard numbers, which seem to show Age of Sigmar has steadied itself, while 40k continues to bleed money, all at the same time the profits are being backed by strong video game/third party licenses.

I was more concerned with the future plans for the company, it looks like the 2015 December sales figures really scared the crap out of GW. It lead to the Start Collecting! sets and a host of other bundle products. GW has for the last few years generated price hikes through new kits, to recoup the investment on molds and design. They have also use an aggressive reboxing policy to create an illusion of price hikes, by adding price, but value to older products. This sort of thing can easily trick an investor into thinking GW is maintaining high margins, but the truth is more likely GW is trying to use the Start Collecting sets, new Board Games, and reboxing as a way to get folks to buy products at a good bulk discount.

This is great for us the consumer, but we have to assume once GW feels safe they will start to hike up the price on everything. Roundtree also reiterated that he will still go over the product lines, so we might be seeing more kits trashed, he also wasn’t completely bullish on the Start Collecting sets.. Other dangers the hobbyist is the continued rise of revenue being generated exclusively from GW stores or website (62% combined) sales. GW is still committed to one-man stores; it doesn’t bode well for your average independent retailer trying to sell GW products and grow larger communities.

As for the good news, GW hire of a marketing manager is at least partly credited for the increased engagement of the company with its customers. GW has really tried to reconnect with us through social media, prize support, and very little litigation. They are listening giving us FAQs, specialist games, and global campaigns! GW is also looking to increase efficiency in its manufacturing department, by investing in new IT systems and more tooling equipment. It will mean even better looking models (less resin, more plastic) done at a faster pace and without supply chain hiccups.

To get an idea on what CEO Kevin Roundtree thinks the priorities going forward are, here is how he ended the annual report,

The board has overall responsibility for ensuring risk is appropriately managed across the Group. The top five risks to the Group are  reviewed at each board meeting. The risks are rated as to their business impact and their likelihood of occurring. In addition, the Group  has a disaster recovery plan to ensure ongoing operations are maintained in all circumstances. The principal risks identified in 2015/16  are discussed below. These risks are not intended to be an extensive analysis of all risks that may arise but more importantly are the  ones that  could cause business interruption in the year ahead.  ERP change  – as discussed above we are changing our core ERP system in the UK. This is a complicated project with the risk of  widespread business disruption if  it is not implemented well. It is being implemented and managed by a strong internal project team and  specialist ERP software consultants. Store manager recruitment  – this comprises both recruitment of managers for new stores as well as replacing poor performing  managers. Retail is our primary method of recruiting new customers and so we need great managers in all our stores. We discuss our  approach as to how we are managing this risk in the earlier section on staff recruitment. Supply chain  – as discussed above we are currently changing our mail order warehouse system. This is part of an ongoing programme  of continuous improvement for these warehouse systems. As with any system change there are risks associated with the transition. In  line wit h our ERP project, we have a strong internal project team and are utilizing specialist supply chain software consultants. Range management  – as discussed above we are reviewing our range to ensure that we are exploring all opportunities. The risk is that  w e don’t fully exploit all the opportunities that are available to us. Our approach to managing this risk is discussed earlier in the section  on range. Distractions  – this is anything else that gets in the way of us delivering our goals. We do not  consider that we have material solvency or liquidity risks. We also feel that it is too early to tell what the effects of the recent  EU referendum vote will be on Games Workshop.

Overall, GW is putting on a good face, but profits have been falling for years now and only through cut costing and few tricks have they been able to paint a pretty picture. The next few years will be critical and maybe finally realizing rules sell products we could be in for good times, or an epic disaster.