Hiccup in PlayStation deliveries prompts Game Group warning

Game Group achieved the ignominious record yesterday of being the first retailer to issue a profitswarning before the festive season.

The computer games retailer blamed poor supplies of the hot new console from Sony, making it the second Christmas in a row that the Japanese electronics giant has let down the company. Last year shipments of its PlayStation 2s got stuck on a boat in the Suez Canal, forcing Game into making a post-Christmas profits warning.

Sony told retailers it could ship 1 million of the new PSPs (PlayStation Portables) by Christmas when it launched the handheld console on 1 September. But it has since struggled, making only 400,000 available for the whole UK market.

Martin Long, the chief executive of Game, said Sony needed to deliver "a lot more to get anywhere near" hitting its 1 million unit target. He said supplies of the PSP had been "intermittent and behind schedule". He warned that demand for the Microsoft Xbox 360, which arrives in the shops on Friday, would also outstrip supply.

Although Game is expected to make one-third of its annual sales in the next nine weeks, it said it would not be able to make up the sales shortfall of the past two months. Cheaper games and old hardware have crucified its gross margins, which are expected to fall by 300 basis points, matching the decrease in the first half.

The company warned that the downturn could wipe out last year's pre-tax profits of £28.5m, predicting it could make as little as £3m in the 12 months to 31 January. Even its best-case scenario sees it making only £13m.

David Thomas, the finance director, said the group had no right of recourse against Sony for letting it down, adding: "In any case, it would be unwise to exercise a right of recourse in relation to such a key supplier."

Speculation that Game's US rival Gamestop, which merged with Electronics Boutique this year, would swoop on Game limited the damage to Game's share price. The stock recovered from earlier lows of 65p to close down 3.25p at 74.5p.

Richard Ratner, the retail analyst at Seymour Pierce, said Game was "long on optimistic expectations and short on delivery", adding: "The problem is that while Game is well run it is not master of its own destiny as it is a one-product company selling branded merchandise." He cut his profit forecast to £6m from £21.5m.

Mr Long said: "The industry is still strong but it has been a very difficult year as we make the transition to new technologies. We haven't had the product necessary to excite consumers."