HMV defies retail gloom to post best-ever Christmas sales

The new chief executive of HMV, Simon Fox, had reason to be cheerful yesterday after the entertainment retailer reported its best ever Christmas just 10 months into his recovery plan.

A year ago, HMV had almost been written off along with other players in the music industry as the rise of the download appeared to signal the death of the CD while the supermarkets and online rivals were putting the squeeze on high-street chains. But HMV wrong footed the City yesterday with a sparkling set of figures including a 9.4 per cent rise in same-store sales over the festive period. Shares in the company jumped 4 per cent and analysts upgraded their forecasts for full-year profits.

The key to HMV's success has been a shift in emphasis towards computer games and technology such as games consoles, one of the fastest-growing sectors in retail as shown in the strong performances of Play.com and Zavvi this Christmas. Mr Fox said games and technology now account for 23 per cent of sales up from 17 per cent a year ago while technology sales were up 100 per cent year on year. By next year, games and technology will account for about 25 to 30 per cent of sales, Mr Fox added. Both Woolworths and Argos-owner Home Retail made the point this week that games sales had eaten into those of boys' toys this year.

Around 1 per cent of HMV's rise in like-for-like sales was down to the closure of a number of competitors over the past two years, Mr Fox said. MVC, Music Zone, Tower Records and Fopp have all fallen by the wayside while Virgin Megastore was bought out by the management and renamed Zavvi at the end of last year, leaving HMV and Zavvi as the remaining kids on the block.

Furthermore, Mr Fox said music sales were up 2 per cent in volume even though the market was down 12 per cent. Some 8 million CDs were sold over Christmas. "Our view is that when there is good material and good releases the music industry will prosper," he said. "We felt there was a good line-up this Christmas. We think the line-up is actually going to get better with releases from Paul Weller, Keane, Madonna and U2."

Although the music industry may be undergoing a shake-up with the record company EMI planning to severely cut back on costs, Mr Fox remains confident in the industry's prospects.

Yet it is DVDs that remained the bulk of the business – accounting for just under half of sales – with The Simpsons Movie the retailer's biggest-seller.

The group's Waterstone's book store chain also performed well with a 4 per cent jump in like-for-like sales. Mr Fox said Waterstone's had benefited from the decision to continue events at its stores throughout the festive period, including a book signing by the former US president Bill Clinton and a midnight performance from the comedian Russell Brand to promote his autobiography.

Yesterday's other trading statements from retailers also revealed better-than-expected results.

Kesa Electricals proved to be another Christmas winner with the demand for flatscreen televisions at its Comet chain boosting sales, although white goods are no longer in favour. It was a similar story at Home Retail Group which forecast annual profits towards the top end of expectations following flat like-for-like sales at Argos but a decline in sales at Homebase. Meanwhile, Associated British Foods, which owns Primark, said the value clothing chain has enjoyed a better-than-expected Christmas.

Mr Fox said he was not overly concerned by the consumer slowdown that has been affecting many other retailers, notably Next, M&S and DSGi. "Our average ticket price is just £10, which I think is the level that people still feel they can afford without it being a luxury," he said. "It seems to be the big-ticket stuff which is not shifting so well on the high street. Real-term prices of DVDs, CDs and books are still coming down."

Nick Bubb, an analyst from Pali International, said: "The business has seen an amazing turnaround from a year ago, when HMV seemed doomed, and management must get some credit for the operational initiatives which have moved things forward."

A good start but Fox still has plenty of work to do

When Simon Fox was parachuted in from Kesa in September 2006, analysts said he had taken on "the toughest job in retail". HMV was in the "category of the living dead", following a series of profits warnings and nothing short of a major rethink on strategy would save it, the City believed.

The company does 40 per cent of its business over the Christmas period so the retailer's performance has been closely watched. And Mr Fox certainly delivered yesterday. Despite many retail bosses remaining cautious on the year ahead following a tough time over the festive period, Mr Fox said he is confident he has the right strategy in place to save the chain.

Mr Fox, who is married with three children and lives in Berkshire, began his career at Security Pacific Bank before moving to the management advisory group Boston Consulting, and later Sandhurst Marketing. In 1989, he set up the UK-based stationery retailer Office World for the Swiss company Globus before joining Kingfisher in 1998. As managing director of Comet, he led its demerger from the DIY group establishing the chain's leadership of the online electricals market. He was then appointed chief operating officer of Kesa with responsibility for Comet and the group's e-commerce developments.

"Just 10 months into the turnaround the business has been stabilised," he said. Among changes at the group have been a greater emphasis on games, websites and the introduction of two new format test stores where customers can download music and play games.

Christian Koefoed-Nielsen, an analyst at Panmure Gordon, said: "This is probably the best Christmas trading statement we'll see this year. The instore proposition has clearly paid off, but it remains to be seen whether the chain can build further on this strong like-for-like performance."

Indeed – Mr Fox is 10 months into a three-year recovery plan and has plenty more work to do.