Game Says Profit Was Ahead of Forecast on Wii Demand (Update3)

March 3 (Bloomberg) -- Game Group Plc, the U.K.'s largest video games retailer, raised its annual profit forecast for the third time in two months on sustained demand for Nintendo Co.'s Wii console and games.

Pretax profit was at least 74 million pounds ($147 million) in the year ended Jan. 31, more than the 73 million pounds previously indicated, the Basingstoke, England-based company said today. Business has since remained ``strong,'' the retailer said.

Demand for the Wii and DS Lite outstripped supply during the Christmas holiday even after Nintendo boosted production, Game has said. Consoles and new software including Dr Kawashima's Brain Training for the DS system have drawn more women and older customers even as higher mortgage payments, taxes, utility bills and food prices increase pressure on British incomes.

``Game is in the right place to drive good sales and profit growth this year, regardless of the wider macro economic situation,'' KBC Peel Hunt analyst Robert Brent wrote in a note.

Game rose 4.75 pence, or 2.6 percent, to 191 pence in London today, cutting this year's drop to 24 percent. The shares dropped the most in almost three years on Feb. 26 after Chief Executive Officer Lisa Morgan and Finance Director David Thomas sold most of their stock, stoking speculation they thought the company's sales growth had peaked.

Xbox, PlayStation 3

``The market clearly thought management were calling the top of the video games cycle, which in our view was premature,'' said Brent, who has a ``buy'' recommendation on the stock.

Game's sales have been boosted by the European introduction of Microsoft Corp.'s Xbox console and Sony Corp.'s PlayStation 3. Both have gone on sale in the region in the past two years.

The retailer said it will benefit from a ``strong pipeline'' of software this year, including ``Mario Kart'' for the Wii, a racing game which features a steering wheel-shaped controller, due to be released in Europe on April 11. The ``Wii Fit'', which includes yoga and aerobics games, designed to give a full body workout, will go on sale from April 25, the statement said.

``The board believes that the market for PC and video-games products remains buoyant,'' Game said.

Same-store sales growth of between 5 and 10 percent is ``achievable'' this year, the retailer said. Game had said on Jan. 15 sales on that basis would be ``limited'' in 2008.

`Strong Pipeline'

``The group has traded well since the commencement of the new financial year and has continued to experience strong consumer demand for the unprecedented range of products in the market,'' the statement said.

Gross margins will widen by between 0.5 and 1 percentage point this year as the retailer sells more software, which is more profitable than consoles, Game said.

``There is a strong pipeline of innovative software with some highly anticipated products scheduled for European release in the next few months,'' the company said.

Game, which bought the 217-store Gamestation chain in May, had said it expected annual cost savings of 7 million pounds a year by April 2009 following the purchase. The savings ``can be achieved fully'' this year, Game said today.

To contact the reporter on this story: Loveday Morris in London at lmorris7@bloomberg.net

To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net