HMV boosts profits and tunes up for online music launch

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The Independent Online

HMV, the high street music chain that also owns Waterstone's booksellers, yesterday defied the power of the supermarkets by reporting a 22 per cent rise in annual profits.

HMV, the high street music chain that also owns Waterstone's booksellers, yesterday defied the power of the supermarkets by reporting a 22 per cent rise in annual profits.

It has also promised to unveil a major music download service by the end of the year to combat the growing availability of digital material. The launch of a legal Napster and iTunes, where customers pay as much as £1 to download a track, have put pressure on sales of CDs and DVDs.

"We are not yet ready to announce what our plans in this area are, but we will be expanding what we provide to customers in a digital format," Alan Giles, chief executive of HMV, said yesterday. HMV already provides a digital download service but is looking for a new model to exploit the market further.

Amid growing competition in the retail sector as supermarkets branch out in to selling CDs, DVDs and books, HMV said like-for-like sales for the year were up 2 per cent for the group. Of this, sales for HMV were up 2 per cent and nearly 5 per cent for Waterstone's, helping lift pre-tax profits by 22 per cent to £118m.

"We estimate a 40 per cent increase in the space allocated to music and video by the leading supermarket chains," Mr Giles said. "But the HMV and the Waterstone's format are very different from the supermarkets' - the depths of stock they hold, the sales environment, the training level of staff. Supermarkets are about convenience and price whereas we are about the range we stock."

He said he believed customers at HMV were more serious buyers and collectors of CDs, and that 60 per cent of its sales are of back-catalogue items. This situation is similar at Waterstone's, where the 5,000 best-selling books represent only half its sales.

While HMV is holding up sales amid supermarket and download competition, it is feeling a more general malaise on the high street. "I wouldn't describe the situation out there as buoyant," Mr Giles said. "There is some evidence, particularly in London and the South-east, to suggest that rising interest rates are having an effect on sentiment. But sales of big ticket items are slowing more so than of CDs and books."

Shares closed up nearly 2 per cent at 242p.

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