HMV chief executive Alan Giles today said he was stepping down as the music and books store reported disappointing sales over Christmas.
Mr Giles, 51, has been chief executive since 1998 but will retire from HMV in December this year.
The shock announcement came as the company reported a 5.5% fall in like-for-like sales at its HMV stores in the five weeks to 7 January, while like-for-like sales at Waterstone's were down 2.4%.
Margins were also hit in the UK following increased levels of discounting compared with the previous Christmas.
HMV fared much better in Canada and Asia Pacific over the festive season, but like-for-like sales for the whole group fell 2.7%.
The decline in Christmas sales followed tough trading conditions throughout the autumn, which saw HMV's operating profits slump to £2.8 million in the six months to October 29 from £15.7 million a year earlier.
Like-for-like sales dived 6.1% in the period, although growth from new stores ensured that total revenues were only £500,000 down at £759.7 million.
Mr Giles said: "The competitive pressures faced by our UK businesses made trading very difficult during the autumn period.
"Despite the improving trend at Christmas, the group retains a cautious view of the outlook, and we remain very focused on maintaining tight control of our costs and on maximising our performance over the remainder of the year."
HMV makes about 90% of its profits in the second half of its financial year, which includes the key Christmas period.
Mr Giles' decision to retire could throw into doubt HMV's controversial takeover bid of smaller independent bookstore Ottakar's.
The deal has already faced ferocious opposition from publishers and authors and has been referred to the Competition Commission.
On the subject of his retirement, Mr Giles said: "I will miss the excitement and camaraderie of working with such a talented team, but after more than 30 years in retailing I feel it is time to move on to the next stage of my career."
He said he wanted to develop "a portfolio of non-executive roles".
HMV also announced that former IBM UK chairman and chief executive Carl Symon will succeed David Kappler as chairman.
Today's half-year results and Christmas trading update was the first September when HMV reported a sharp dip in summer sales and warned of a gloomy outlook for the rest of the year.
The company said today: "Both HMV and Waterstone's delivered a marked improvement in trading over Christmas following very difficult conditions in the autumn."
HMV was boosted by sales of Eminem and Robbie Williams CDs, while the Lee Evans XL Tour 2005 Live DVD also performed well. Earlier in the year, new albums by Coldplay and Gorillaz were popular with shoppers.
At Waterstone's, best-selling books included Jamie's Italy by Jamie Oliver, Sharon Osbourne's autobiography and Untold Stories by Alan Bennett.
But Christmas offers at both stores meant margins fell.Reuse content