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Analysts warn of 60% profit drop for GAME

Chain could become takeover target for GameStop claim Deutsche Bank

UK-based retailer GAME could be about to announce a drop in profits of up to 60 per cent according to analysts, as the chain continues to restructure for online sales.

Deutsche Bank is predicting that GAME will show profits of only £37.5 million, a decrease of £0.5 million on their earlier predictions. GAME itself has predicted profits before tax of £37 to £39 million.

This represents a fall in profits of around 60 per cent, from a high of £90 million the previous year.

GAME is also expected to report weak current trading, with Deutsche Bank forecasting a drop in UK like-for-like sales of 8 per cent and international sales of 5 per cent. Despite the negative forecast though the bank is retaining its hold recommendation for GAME Group shares, in part due to strong net cash reserves of £110 million.

Christmas sales for the chain were down 4.1 per cent overall, with the UK and Ireland down 3.3 per cent and like-for-like sales dropping by 2.1 per cent for the group and 0.5 per cent in the UK alone.

At the time outgoing chairman Peter Lewis blamed a "difficult" PC and video games market and adverse weather for the figures. Lewis is due to retire this year and is expected to be replaced by former Ladbrokes boss Chris Bell.

In February the company announced plans to triple online sales by 2013, from £100 to £300 million. "Great businesses are good at reinventing themselves," said CEO Ian Shepherd at the time. "Following their customers as their customers change. Gaming customers are changing."

"The market is getting more confusing. That creates as opportunity for the aggregator, the expert, the guide. In the games market today there is not that guide across the whole breadth of the market. By deploying our strengths we can position ourselves as that aggregator," he added.

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David Jenkins