UPDATE 3-Game raises year guidance after record first half

(Adds details, CEO, analyst comments)

LONDON, Sept 30 (Reuters) - Game Group Plc (GMG.L), the British video games retailer, bucked sector gloom on Tuesday by raising its full-year sales and margin guidance after reporting record first-half profit and solid current trading.

The group also issued an upbeat outlook statement -- a rarity in the UK retail sector given the current depressed economic environment.

"The board remain confident in our outlook for Christmas and the full year," Chief Executive Lisa Morgan told reporters, pointing to a growing installed base of console ownership and a strong software release schedule.

The group raised its year to end-Jan. 2009 like-for-like sales forecast from growth of 5 percent to 10 percent to growth of 8 percent to 12 percent.

It also increased its gross margin forecast from growth of 50 basis points to 100 basis points to growth of 80 basis points to 110 basis points.

The margin is expected to benefit from a bigger proportion of higher margin software being sold as well as further purchasing and stock efficiencies.

Andrew Wade, analyst at Numis, raised his current year pretax profit forecast from 113.5 million pounds ($204.6 million) to 125 million pounds, up from 75.5 million pounds last time.

Many UK retailers are struggling as consumers, under pressure from higher fuel, food and mortgage costs, curb spending.

But Game, which will trade from over 1,300 stores in 10 countries by Christmas, bucked the trend reporting a profit before non-recurring costs and tax of 36.4 million pounds for the six months to July 31. This compares with company guidance in July of profit of "not less" than 33 million pounds and 2.7 million pounds in the same period last year.

Group sales increased 54.1 percent to 743.4 million pounds, reflecting the popularity of hardware formats such as PlayStation3 and Xbox 360 and games such as Wii Fit and Mario Kart where demand exceeded supply.

On a like-for-like basis, which strips out the impact of new space, sales were up 22.2 percent. Like-for-like growth has slowed in the second half but was still up 4.9 percent for the eight weeks to Sept. 20 against very strong comparative numbers.

First-half gross margin increased 120 basis points.

Morgan said playing games provided a more affordable alternative to many other family leisure activities.

"There are many products that are available for around 30 pounds that can give the family just hours and hours of entertainment," she said.

Game's interim dividend was raised 25 percent to 1.79 pence.

At 0956 GMT shares in Game were up 2.5 pence, or 1 percent, at 197.5 pence, valuing the business at 682 million pounds.

The stock has lost 28 percent of its value over the last month after aggressive promotions from supermarket group WM Morrison Supermarkets (MRW.L) and variety store retailer Woolworths Group WLW.L raised the prospect of a price war.

However, Morgan played down the competitive threat.

"We operate in what has been a very competitive market in the UK for many years now and I would describe the competitive landscape as probably stable in the backdrop of that," she said.

Freddie George, analyst at Seymour Pierce, said in a note fears of a price war were "overdone" with sales momentum supported by hardware price cuts and a strong Christmas release schedule.

In the longer term George said the group would make an attractive target for U.S. peer Gamestop (GME.N).

(Reporting by James Davey; Editing by David Cowell and Jon Loades-Carter)