By Jesus Calero and Marie Mannes

STOCKHOLM (Reuters) -Swedish games developer Embracer on Thursday reported slightly weaker than expected operating profit for the April to June period but reiterated its full-year guidance, saying its restructuring programme was on track.

Shares initially rose by around 8%, but almost immediately reversed and were flat at 0812 GMT.

Adjusted operating profit for the fiscal first quarter stood at 1.67 billion Swedish crowns ($152.75 million), lagging the 1.78 billion expected in a company-provided poll of analysts, but up from 1.32 billion crowns a year ago.

"We now have increased confidence regarding earnings this year and we are on track to deliver on the restructuring programme," CEO Lars Wingefors said in a statement.

Wingefors said operating costs increased due to inflation and the impact of hiring last year, which had been partly offset by restructuring.

After a boost linked to COVID-19 lockdowns that drove demand for gaming, the company has had a difficult year with development delays and a poor reception for some of its new games.

In addition, a $2 billion partnership it had called "ground-breaking" fell through in May, sending the company's shares down 45%.

The company last year bought several development studios and the intellectual property rights to a new Tomb Raider edition as well as to Lord of The Rings games.

Redeye analyst Viktor Lindstrom said licensing revenues from Lord of the Rings had helped to drive some "stronger sales than expected".

Analysts also said the company had made progress towards its financial targets and expected enhanced free cash flow in the second quarter.

($1 = 10.9332 Swedish crowns)

(Reporting by Jesus Calero and Marie Mannes; Editing by Terje Solsvik, Edmund Klamann and Barbara Lewis)