Game Group's warning makes it a rare Christmas loser

Game Group has warned that it will miss full-year profit targets because of falling sales of Nintendo consoles and competition from supermarkets during the crucial festive period.

Despite a strong line-up of games on the shelves for Christmas, including Call of Duty: Modern Warfare 2, the third biggest-selling game in UK history, the specialist computer-game chain yesterday posted an almost 14 per cent drop in revenues in the five weeks to January 9.

The group's shares fell 8.7 per cent as the group admitted profits would be lower than the £95.8m expected by the markets, and could sink as low as £87m.

Mark Photiades, an analyst at Singer Capital Markets, said: "The market was highly competitive in the three weeks preceding Christmas, with high levels of discounting." He said the company was threatened by increased competition, especially from supermarkets, and internet retailers in the longer term.

Game Group's shares spiralled 20 per cent lower last month after it revealed that sales had fallen 13.9 per cent in the 18 weeks to 5 December and management expressed caution over Christmas. As well as increased competition, the company was hit by tough comparatives, underperformance by some video games and lower margins following console price-cuts.

Game's chairman Peter Lewis said: "The negative trends in the PC and video games market, outlined in our previous statement, continued over the key Christmas selling period." He added: "The board remains mindful of the uncertain macroeconomic environment," suggesting revenues would suffer in 2010, and said the market would continue to move towards "higher-margin software" and accessories.

The PC and video-games market declined 24 per cent in the UK in 2009 over the previous year, according to Game, when demand for consoles, including Nintendo's Wii and Sony's PlayStation 3, was "unprecedented". Mr Lewis said: "Much of the decline is due to a fall in revenues from the Nintendo formats." The group is now counting on a "strong schedule of new releases", including Mass Effect 2, Splinter Cell: Conviction, Bioshock 2 and God of War to kick-start sales in the first half.

The market is also waiting for Microsoft and Sony to match the Wii with their own take on its popular "sensing technology". Mr Lewis said: "We also expect further manufacturer pricing and promotional activity supported by strong software launches throughout the course of the year." He added that there had been a significant improvement in sales since Christmas.

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