Game Group's sales dip worsens

U.K. retailer sees share price fall 9%

LONDON -- Video games retailer Game Group on Thursday reported an accelerating decline in sales, only partly offset by better profit margins, sending its shares as much as 11% lower.

The group, which trades from 1,367 stores, concessions and franchises in nine European countries and Australia, said like-for-like sales fell 15.4% in the 21 weeks to June 27.

This compares with a fall of 6.3% for the 11 weeks to April 18, indicating underlying sales have slumped by about 25% over the latter 10 weeks.

Chief executive Lisa Morgan blamed the decline on an exceptionally strong release schedule in the previous year. She said the software release schedule for the second half of the current year was much stronger than the first half, with titles including "Wii Fit Plus," "Singstar: Take That," and "Forza Motorsport 3" due for release.

"Although we have seen further like-for-like declines ... this was expected, given the exceptionally strong trading period last year when sales were up 25% on the back of record breaking launches such as 'Mario Kart,' 'Wii Fit' and 'Grand Theft Auto IV,' " Morgan told reporters.

But analysts said the numbers were worse than they had anticipated.

"These sales performances are weaker than we have assumed in H1," said David Stoddart, analyst at Altium Securities, who cut his year to Jan. 31 2010 underlying pretax profit forecast to £115.9 million ($189.7 million) from £118.2 million ($193.4 million).

In the previous year the group made £126.2 million ($206 million).

Game's shares were down 9% at 149.75 pence at 10:53 a.m., valuing the business at £519 million ($850 million).

Before Thursday's update the stock had lost 43% of its value over the last year on fears of slower growth, lack of newsflow on the next generation of consoles and the threat of digital distribution, underperforming the FTSE All Share General Retailers index FTASX5370 by 49%.

"Against our full year assumptions the performance in H2 is now looking quite stretched, and assumes a significant pick-up in like-for-like trends and sales transfer from failed competition (Woolworths and Zavvi)," analysts at Singer Capital Markets said in a research note.

Many U.K. retailers are struggling as cash-strapped consumers rein in spending amid falling property prices and rising unemployment.

Game said it had seen "good gross margin growth" due to higher-margin software and accessory sales being a larger part of the sales mix and a good performance from its pre-owned items business.

The group reiterated its gross margin guidance for the year to Jan. 31 2010 which it sees up 150 to 175 basis points and forecast first-half to end-July profit before one-off items "in line with plan" at between £13 million - £16 million ($21.3 million - $26.2 million), down from £36.4 million ($59.6 million) in the previous year.

On Tuesday HMV Group, the music, books and gaming retailer, reported a 12% rise in annual profit.
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