Games Workshop|Record Profit, Falling Shares

Record Year, Falling Shares

Games Workshop just reported the best year in its history. Pre-tax profit rose to a record £275.7 million, beating the company's own guidance by 4%, and revenue climbed 6.8% to £659.7 million. Yet the shares fell 5.5% to 19,100 pence on the day of the announcement. For a FTSE 100 stock posting record numbers, that reaction demands an explanation.

The result was not uniformly strong. The core miniatures and hobby business, Games Workshop's main engine, grew operating profit 15.7% to £245.1 million, and Jefferies noted core operating profit was up 17% at constant currencies. But licensing revenue, mostly video game royalties, dropped 37% to £32.9 million as the boost from last year's Space Marine 2 launch faded, dragging licensing operating profit down from £49.5 million to £29.9 million.

Games Workshop declared a dividend of 485 pence, down from 520 pence the previous year, even as chief executive Kevin Rountree described the business as being in great shape. That combination, record core profit but a lower payout and a licensing slowdown, is the first thread investors are pulling on, and it only explains part of the share price move.

The Tariff Drama Nobody Expected

The company's own trading update opened with an admission: "I thought this would be drama free, how wrong I was." Games Workshop had paid £12 million in US customs charges to keep trading across the Atlantic after Donald Trump's tariffs took effect, then reclaimed £7.8 million of that after the US Supreme Court ruled the original 'liberation day' tariffs illegal in February.

The refund was not the end of the story. Trump has since reintroduced a fresh round of permanent tariffs, including a 10% duty on UK exports to the US, one of Games Workshop's largest markets. The company now expects to shoulder roughly £13 million in tariff costs over the coming year, more than it clawed back in the refund. Analysts at Freetrade and Peel Hunt pointed to this forward tariff bill, alongside the licensing dip, as the reason shares opened lower despite the record results.

Notably, the company chose not to classify the tariff cost as an exceptional item, telling investors: "Unlike some companies, we do not consider tariffs as an exceptional item, but rather part of the uncertainty of operating globally." Peel Hunt reiterated its buy rating regardless, calling the underlying performance strong against a tough comparative period, which suggests the tariff overhang is being treated by at least one broker as manageable rather than structural.

The AI Question in the Background

Separately from the financials, Games Workshop confirmed in its latest report that it had investigated "a few human errors" in product marketing imagery this year, after fans spotted an apparent extra finger on a Space Marine in official Horus Heresy artwork and suspected AI generation. The company said the anomaly came from an artist blending miniature photography with illustration, not AI, but launched a formal review to confirm staff had followed its internal anti-AI policy.

Games Workshop had banned AI use in product design and IP creation back in January, insisting none of its senior managers were enthusiastic about the technology. But CEO Kevin Rountree acknowledged in the report that AI is now automatically embedded in third-party software "whether we like it or not," making it difficult for the company to guarantee AI is never used anywhere outside its own studio, something he said the business will have to monitor rather than fully control.

None of the three threads, the licensing slowdown, the forward tariff bill, or the AI-marketing scrutiny, are individually severe enough to overturn a record year of core profit growth. But together they explain why a FTSE 100 company beating its own guidance still opened lower: the market is pricing not this year's results but next year's £13 million tariff cost and whether the core hobby business can keep compounding once the licensing tailwind and this year's court refund both fade. The next checkpoint is straightforward, whether Games Workshop's full-year guidance for the coming period absorbs that tariff cost without denting the core margin gains Jefferies flagged today.