HMV misses out on Christmas uplift in sales

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HMV is the latest retailer to feel the impact of disappointing Christmas sales after warning that subdued demand for CDs, DVDs and books had hit profits.

The profit warning was widely anticipated after Woolworths warned that sales of entertainment products such as DVDs and CDs had slumped in the lead up to Christmas. HMV said its profits for the year would be no higher than £69m, well below optimistic market expectations of around £89m, and last year's figure of £98m. Its shares fell almost 5 per cent to 146.5p.

Simon Fox, HMV's new chief executive, said that like-for-like sales had risen a modest 0.6 per cent over the past three months and that the company had grown its market share between 2 and 3 per cent. Yet the up-tick was not enough to offset a tough retail environment and a lower pricing model that the retailer adopted to compete with online competitors such as Amazon and supermarkets.

"HMV is suffering as a result of high street footfall declining. Music is an impulse purchase and lower footfall will impact sales. The music market has taken a downturn, including digital sales, has fallen 14 per cent since October," Mr Fox said.

Footfall, the retail analysis unit of Experian, said that the number of shoppers trawling the high street last week was almost 9 per cent lower than last year. "Christmas isn't over yet but we are not where we want to be at this stage," Mr Fox said.

He added that sales of top 20 CDs are down around 11 per cent compared with last year. He denied the slowdown was the result of more consumers using download services. "The digital market has plateaued since the summer at about 4.5 per cent of the overall market," he said.

HMV's downbeat comments contrasted to a recent Music Week/Official UK Chart Company survey that showed the album market was only off 1.4 per cent in the year to date.

A Universal Music spokesman said: "We see the market positively. Having the year's biggest-selling album, and the year-end's biggest-selling album, only goes to prove that when you deliver the right music, consumers will respond."

HMV said underlying sales at its Waterstones book chain, which recently completed the acquisition of Ottaker's, had dropped 3.7 per cent in the past three months. The monthly survey of the high street by the CBI showed that booksellers had suffered their sharpest fall in sales over the last month in the survey's 23-year history.

Mr Fox said that he would reveal a new growth strategy in the new year. He has inherited his predecessor Alan Giles's recovery plan after joining two months ago. "I am very optimistic. I think there is room on the high street for deep-range specialists and there is a lot of opportunity out there."

Analysts were less convinced. Steve Davis at Numis Securities said: "It is very hard to see how Simon Fox is going to turn this around - we suspect that he has just taken on the toughest job in UK retail."