U.K. computer and videogames retailer Game Group PLC (GMG.LN) Wednesday posted a 60% drop in first-half profit following a lackluster game line-up, but it increased its gross margin guidance for the year.

Chairman Peter Lewis said the retail environment continues to be tough but is hopeful the group will do well over the key Christmas selling period.

Profit before tax and non-recurring costs - the key figure tracked by U.K. analysts - fell to GBP14.5 million for the six months to July 31 from a restated GBP35.8 million a year earlier as sales fell sharply. The result is within Game's guidance in July that interim profit would come in between GBP13 million and GBP16 million.

Last year, Game benefited from strong sales of games including Wii Fit, Mario Kart and Grand Theft Auto IV.

In the first half of fiscal 2010, sales from stores open at least year were down 16%, compared with a 15% fall in the 21 weeks to June 27.

First-half revenue fell 7% to GBP690.8 million from GBP742.6 million a year earlier. That compares with a 9.1% fall in the 21 weeks to June 27.

Game booked an increase in gross margin of 190 basis points in the first half from a year earlier, and forecast growth of 170-220 basis points for the year from its previous guidance of 150-175 basis points.

Game declared an interim dividend of 1.88 pence a share, up from 1.79 pence a year earlier.

Game shares closed at 172 pence Tuesday, valuing the group at GBP597 million. The shares have fallen 19% over the past 12 months on falling sales and earnings as well as concerns about increasing competition.

Company Web site: www.gamegroup.co.uk

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com
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