Game Group's value cut in half after sales slump prompts another profits warning

Computer-games retailer expected to record loss of £10.7m for the year

Game Group, the troubled computer games retailer, has blamed "extraordinary economic times" for another profits warning after a spike in sales of new releases failed to materialise.

Nearly half was wiped off the market capitalisation of Game yesterday after it marked down its guidance on profits, gross margins and underlying sales. Analysts at Peel Hunt now expect Game – which has a total of 1,287 stores globally – to sink to a loss of £10.7m for the year to 31 January 2012, compared with a profit of £37.8m the previous year.

In a tale of woe, Game said revenues at its software, hardware, pre-owned games and accessories units were down. Ian Shepherd, the chief executive of Game, said: "The overall games market remains very challenging, despite strong title launches, and our guidance today reflects the extraordinary economic times in which we operate."

Some industry experts believe the inexorable shift to downloading games online means that Game could be only a few steps behind the troubled entertainment group HMV in terms of having to find a plan B. Others question whether Game should be a quoted company, when it is so reliant on the vagaries of the release cycle of games.

Game raised hopes in its interim statement on 27 September, when it listed 15 top-rated games to launch before December, including Call of Duty: Modern Warfare 3, Battlefield 3 and Fifa 12. At that time, it admitted that the next 10 weeks are "extremely important", as they represent about 40 per cent of annual revenues. But in the seven weeks since then, Game's sales fell by 4.9 per cent, while they were down 2.9 per cent on a like-for-like basis.

Philip Dorgan, an analyst at Panmure Gordon, said: "Game's last outlook statement read like a child's letter to Santa. It appears the unfortunate child will not be getting any pressies." Game last warned on profits in June.

Mr Shepherd said: "The big game launches over the last few weeks have gone pretty well." But he conceded that cash-strapped customers had cut back significantly on purchases of hardware, accessories and back catalogues. He also touted its digital operations as its "fastest growing business".

But the group's e-commerce sales were "flat" over the 41 weeks to 12 November.

While its online margin has doubled since its website relaunch, Game's share of the internet market remained at 19 per cent. At its 610 stores in the UK and Ireland, Game's like-for-like sales plummeted by 10.5 per cent over the period. Game expects its full-year sales will be "no better" than a fall of 7 per cent, compared to previous guidance of flat to lower by 3 per cent.

Sanjay Vidyarthi, an analyst at Espirito Santo, said: "[Game's] longer term strategy continues to make sense, but it is difficult to see when the short-term pain ends."

But Mr Shepherd insisted Game had "outperformed the market". He pointed to a 10.6 per cent fall in its total sales over the 41 weeks, compared to a 12.3 per cent decline in the overall video games market. Shares in Game fell by 8.7p, or 46 per cent, to 10.3p.