* Underlying year pretax profit 126.2 million pounds
* 11 weeks to April 18 like-for-like sales down 6.3 percent
* 11 weeks to April 18 gross margin up 150 basis points
* Says confident on outlook for year to January 2010
* Shares up 15.9 percent at 0855 GMT (Adds further detail)
By James Davey
LONDON, April 22 (Reuters) - British video games retailer Game Group reported better than expected recent trading along with a 67 percent jump in full-year profit, adding to growing optimism in the sector and sending its shares up to 18 percent higher.
"Current trading performance is ahead of our expectations and this is particularly pleasing when set against the double-digit growth achieved last year," said Chairman Peter Lewis.
Game said like-for-like sales fell 6.3 percent in the 11 weeks to April 18, well ahead of some analyst forecasts of a fall of over 10 percent, while gross margins were up around 150 basis points.
Game shares, which have lost a third of their value over the past year, underperforming the FTSE All Share General Retailers index by 24 percent, were up 26 pence, or 15.9 percent, at 191 pence at 0855 GMT, valuing the business at 670 million pounds.
The group's positive update came as British telecoms and retail group Carphone Warehouse beat fourth-quarter customer growth forecasts, and Citigroup raised its investment ratings and price targets on a raft of British retailers.
Game, which trades from 1,340 stores, concessions and franchises in nine European countries and Australia, made a pretax profit before non-recurring costs of 126.2 million pounds ($183 million) for the 53 weeks to Jan. 31.
That compared with company guidance of "not less than 122 million pounds", analysts' consensus forecast of 124 million according to Reuters' Estimates, and 75.5 million in 2008-09.
Turnover increased 32 percent to 1.97 billion pounds, with like-for-like sales up 8.8 percent and gross margin up 140 basis points to just over 26 percent as more higher margin software was sold.
"This was in the context of an unprecedented line up of new (software) releases and rapid growth of console ownership," Chief Executive Lisa Morgan told reporters, noting the installed base of third generation consoles (Playstation 3, Xbox 360 and Wii) is now over 22 million units in the UK, 9 million ahead of this time last year.
Video gaming, seen as a more affordable alternative to many other family leisure activities, is one of a few areas that have bucked the economic downturn.
Game, which raised its dividend 25 percent to 5.5 pence and ended the year with net cash of 81.4 million pounds, said it was confident in the outlook for the year to end-Jan. 2010.
Morgan said second quarter trading will be helped by strong sales of the new Nintendo DSi and a robust software new release list, including Sin III and a new Harry Potter game.
Given tough comparatives Game does not expect to return to like-for-like sales growth in the 2009/10 year but forecast gross margin will improve by 150 to 175 basis points.
"The second quarter comparatives are even tougher, so things may get worse in the short term, but the key is the Christmas outlook," said Nick Bubb, analyst at Pali International.
He added that given good new software titles in the pipeline, the huge installed base of hardware and the availability of 10 percent of market share from the demise of retailers Woolworths and Zavvi, "Game are entitled to be confident."
Analysts at Deutsche Bank raised their current year forecast from 115 million to 117 million pounds.
(Editing by David Cowell) ($1 = 0.6896 pound)