Computer and video game seller Game Group yesterday warned that annual profits will be less than half what the City had been expecting due to poor supply of popular hardware during the crucial Christmas trading period.

Shares in Europe's largest independent game retailer dropped as it forecast profits for the year to end January 2006 of £3m-£13m, compared with analysts' forecasts of more than £21m. The company has suffered from a shortage of Sony's PSP handheld devices, launched in September, and fears there will not be enough of Microsoft's new Xbox 360.