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GAME Group shares drop 18%

Shares in the retailer fall amid fears that profits have hit their peak, as CEO disagrees with assessment

Shares in British retailer GAME dropped 14 per cent to a three month low in today's trading, on concerns that demand has peaked.

The company had earlier reported group sales up 54 per cent, despite shortages of Nintendo product in certain territories. GAME shares outperformed the UK general retailers index by about 85 per cent this year.

"A stunning trading update," Shore Capital analyst John Stevenson told Retuers, raising his full-year profit forecast by almost a quarter to GBP 139.5 million (USD 277 million).

"(But) unless we see new hardware launches into the UK market over the next 2 years, which appears unlikely at present, then we believe profits will peak this year and fall consistently over the following three years," he said, keeping a "sell" rating on the stock.

GAME chief executive Lisa Morgan said that sales were boosted by a number of AA releases - Mario Kart and Metal Gear Solid 4, among them - during a relatively quite period in the industry. She disagreed, however, with the notion that the market was at its peak.

"The point to make is that we haven't seen any new console releases in the first half and we were up against the launch of Playstation 3 last year," she told reporters.

Morgan said that, unlike previous games cycles which have been driven mainly by one major console - namely, Sony's PlayStation and PlayStation 2 - demand is now being fuelled by a number of consoles, including Nintendo's Wii and Microsoft's Xbox 360, and that new games were appealing to bigger audiences.

"What you're seeing now is that as the installed base (of consoles) grows there's a fantastic momentum for a whole host of software titles," she said, tipping sequels for FIFA and Need for Speed games as big sellers in the run up to Christmas.

Pali International analyst Nick Bubb agreed.

"Given the much broader and deeper range of formats and consumers involved...the games market boom is likely to continue," he wrote in a research note. Bubb also thinks that, when the US market does slow down, GameStop is bound to make a bid for GAME.

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