Game Group’s profit down and sales still falling

Game Group’s profit down and sales still falling

London: British computer and video games retailer Game Group on Wednesday posted an expected 59% slump in first-half profit and said sales had continued to fall in its second half.

The group, which trades from 1,368 stores, concessions and franchises in nine European countries and Australia, made a profit before tax and non-recurring costs of £14.5 million ($23.7 million) in the six months to 31 July.

That compares with company guidance of £13 million to £16 million and £35.8 million in the 2008 period.

The profit fall partly reflects an exceptionally strong release schedule in 2008, including record breaking software launches such as Wii Fit.

First-half sales fell 7.0%, while sales at stores open at least a year were down 16.3% and down 16.6% for the 33 weeks to 19 September.

Game said its gross margin increased 190 basis points to 28.9% and it raised its full-year gross margin guidance to a rise of 170 to 220 basis points from guidance of 150 to 175 basis points.

Trading statements from UK retailers over the last month have supported hopes of a quick recovery from recession and have generally been backed up by official data. However, many retail executives and analysts remain cautious given rising unemployment, low earnings growth, heightened debt levels and an expected rise in VAT at the turn of the year.

Game said that although the retail environment continued to be tough it was “optimistic" for the Christmas selling period.

This optimism was based on recent manufacturer price reductions on the Microsoft Xbox 360 Elite and Sony’s new model Playstation 3 which are stimulating the hardware market and a strong line up of software and accessory releases in the run-up to Christmas.

The firm is paying an interim dividend of 1.88 pence, up 5.0%.

Prior to Wednesday’s update analysts were on average forecasting a year to end-January 2010 underlying pretax profit of about £112 million, according to Reuters Estimates, down from £126.2 million in the previous year.

Game shares have lost nearly a quarter of their value over the last year on fears of slower growth, lack of newsflow on the next generation of consoles and the threat posed by digital distribution, underperforming general retailers by about 35%.

The stock closed on Tuesday at 171.3 pence, valuing the business at £594 million.