Game share price takes a dive after profits warning

Shares in Game Group, the computer games retailer, sank 57 per cent yesterday when it warned that weaker than expected demand combined with a ferocious price war meant it would miss profit forecasts.

Game shares fell 41.5p to 31p on the news, which caused sharp falls in rival retailers. Woolworths shares fell 11 per cent, Dixons closed down 6 per cent and HMV finished 7 per cent lower. The warning sparked fears that Christmas trading might be weaker than expected across the high street and dragged down shares in retailers as diverse as Next and Matalan.

After days of a falling share price and newspaper reports of rival chains such as Argos and Dixons cutting £10 off the price of top new games, Game issued a statement saying "the levels of demand across the market for the Christmas period have been disappointing and like-for-like sales at Game in December are 4.7 per cent behind last year". It added that the weaker demand had led to "an unexpectedly high level of promotional activity as retailers attempt to stimulate demand".

Profits for the year to 31 January are now expected to be similar to last year's £31.5m. Previous market forecasts were for about £41m.

Argos sparked the price war last week when it cut the price of all its PlayStation games from £39.99 to £29.99. Dixons followed on some of its games while Woolworths offered "bundled offers" which combined the consoles and games for a knock-down price. Game, which is headed by John Steinbrecher and changed its name from Electronics Boutique in April, has been forced to follow suit, though as a specialist retailer the impact on its figures has been more significant.

One analyst said: "Is there a place for Game Group anymore? The focus has always been on the hot [computer game] titles. Game established itself and now the big players who don't want to miss out, like Dixons and GUS [which owns Argos], have come in and eaten its lunch."

The meltdown in the market is in sharp contrast to the bullish stance taken by Game earlier this year. In the spring, it described the current period as "the golden age of gaming" as three new consoles battled it out for supremacy: Sony's PlayStation 2, Microsoft's Xbox and Nintendo's GameCube. But two of the manufacturers have cut their prices twice this year. PlayStation 2 has come down from £299 to £170. Xbox has come down from £299 to £159 while GameCube has stayed at £129 but its sales have been hit.

Asked whether the profits warning marked the end of the boom in computer games, Martin Long, Game's finance director, said: "It is difficult to say at this moment in time. It could be that there is too much choice and people don't understand the differences. Or perhaps people might be waiting for lower console prices."

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