Game Group profits rise 400 per cent as new audiences buy into the wand culture of Nintendo’s Wii consoles

Source: Times Online

The Nintendo effect has spread to Game Group after the UK home entertainment retailer reported a 400 per cent surge in annual profits as the audience for computer games widened to women and older players.

Game Group said pre-tax profits for the 12 months to January 31, 2007 rose to £29.5 million compared with £5.4 million last year, while turnover leapt by 24 per cent to £801.3 million from £645.1 million.

Like-for-like sales - a measure that excludes sales generated from new shops opened during the year - increased by 16.2 per cent.

Over the past year, Japan’s Nintendo has succeeded in expanding the appeal of computer games to a female audience as well as younger and older consumers through the launch of its DS Lite handheld console and Wii, where players use two “wands” to take part in games. Sony also sells a handheld console, PSP.

Game Group said the level of choice in gaming consoles “has both increased the spending of the committed gamer and created a new group of gamers, with more female members and both younger and older gamers becoming a larger proportion of the Game customer base”.

Earlier this month, Nintendo raised its full-year sales forecasts to ¥960 billion (£4 billion) from a previous ¥900 billion, because of strong revenues from DS Lite.

Since Game Group’s year-end in January, Sony has launched its much-anticipated PlayStation 3, which began selling in Europe in March.

Game Group said like-for-like sales over the 12 weeks to April 21 were up by 44 per cent. Excluding the impact of PlayStation 3, same-store revenues rose by 16 per cent on the same period a year ago.

The company said that trading since the launch had returned to “more normal sales levels”.

Despite the large annual rise in both sales and profits, shares in Game Group dipped by 0.75p to 151.25p after the company posted only a marginal increase in margins at 27.2 per cent compared with last year’s 27 per cent.

Game Group also admitted that, owing to the number of new console launches, margins are set to fall by 1.5 per cent. Computer hardware is traditionally a lower-margin product in a highly competitive market, with Game Group up against rivals such as Amazon, the online retailer.

In contrast, the company said that computer games can generate up to 60 per cent of its business in a year when there are no major new console releases and can carry a margin of between 25 per cent and 40 per cent.

During the year Game Group opened 63 new stores, including 50 new sites acquired from France’s Maxi-Livres. The company now operates through 834 stores spread over nine countries including new territories in Australia, Norway and Portugal.

The company said that during the year operating profits from its international business more than trebled to £6.1 million from £1.8 million, while online operating income rose to £1.5 million from £700,000 a year ago.

Game Group has lifted its final dividend by 20 per cent to 1.66p, giving a total payout to investors of 2.93p a share compared with 2.53p last year.