Sept. 30 (Bloomberg) -- Game Group Plc, the U.K.'s largest video-games retailer, said first-half profit rose 26 times and increased annual forecasts as new releases including Nintendo Co.'s ``Wii Fit'' and ``Grand Theft Auto IV'' boost sales.

Net income climbed to 23.4 million pounds ($42 million), or 6.75 pence a share, in the six months ended July 26 from 938,000 pounds, or 0.27 penny, a year earlier, the Southampton, England- based company said today. Annual revenue will gain 8 percent to 12 percent at stores open at least a year, Game said, up from a previous prediction of 5 percent to 10 percent.

A boom in sales of games for Wii, Sony Corp.'s PlayStation 3 and Microsoft Corp.'s Xbox has kept Game's revenue rising even as consumer spending slows. Game shares have dropped 28 percent in the past month on concern that competitors may cut video-game prices as the Christmas holiday approaches.

``The company has a compelling offer,'' Seymour Pierce analyst Freddie George wrote in a note today. ``There is still strong momentum in sales with hardware prices being reduced, and the release schedule looks good prior to Christmas.''

Game advanced 10 pence, or 5.1 percent, to 205 pence in London trading, valuing the retailer at 710 million pounds. The stock has dropped 18 percent in 2008 after more than quadrupling over the prior three years.

Competitors' Prices

The retailer refrained from attempting to match Woolworths Group Plc's recent price cuts on the likes of Wii, Chief Executive Officer Lisa Morgan said on a conference call. It relied instead on multiple-purchase offers for games, which carry a higher margin, she said.

``We operate in what has been a very competitive market in the U.K. for many years now,'' the CEO said. ``I'd describe the competitive market as stable.''

Woolworths sold Wii this month for 159.99 pounds, a 20-pound discount. William Morrison Supermarkets Plc, the fourth-largest U.K. grocery chain, sold top-selling games for the console for 15 pounds.

``We have taken a view that discounting is likely to enter the market in the run-in to Christmas,'' Altium Securities analyst David O'Brien wrote in a research report today. ``On the basis of discounting, we think the sheen will be taken off Christmas trading and therefore retain our sell recommendation.''

1,300 Shops

The retailer plans to expand further in the Iberian peninsula, Australia and France, Morgan said. Game purchased Czech video-games company JRC and its 19 stores for 3.95 million pounds on Aug 21.

Game expects to have 1,300 shops open globally, 13 percent more than in 2007, by the Christmas period, its most profitable. The company said today it will open 14 more concessions in Borders Group Inc. bookstores before the holiday after a trial of six sites.

The retailer will have between 60 and 65 concessions, making up about 10 percent of its U.K. outlets, when a planned total of 33 Borders units have opened, Finance Director David Thomas said on the conference call.

Microsoft Corp.'s ``Gears of War 2'' and Vivendi SA-owned Activision Blizzard Inc.'s ``Guitar Hero World Tour'' probably will lead sales up to Christmas, according to Morgan, who also said Game's loyalty card is helping to draw more female customers. The retailer expects women to account for 40 percent of cardholders by Christmas, up from 24 percent in 2003.

Gamestation Takeover

Game raised forecasts for gross margins and the financial benefits from buying competitor Gamestation. Gross margins, a measure of profitability, will widen by between 0.8 and 1.1 percentage points in the fiscal year, the company said, up from its prior prediction of 0.5 to 1 percentage point.

So-called synergy benefits from the takeover will be 9 million pounds this fiscal year, up from a previous forecast of 7 million pounds, the retailer said.

First-half sales increased 54 percent to 743 million pounds. They rose 22 percent at stores open at least a year, though growth slowed to 4.9 percent in the eight weeks after the period's end, the company said. Pretax profit before one-time costs rose to a record 36.4 million pounds, beating the company's July forecast of at least 33 million pounds.

The retailer raised its first-half dividend by 25 percent to 1.79 pence a share.

To contact the reporter on this story: Howard Mustoe in London at hmustoe@bloomberg.net.

Last Updated: September 30, 2008 12:01 EDT