Flagging HMV puts faith in Avatar

HMV Group, the music, books and DVD retailer, is confident the rush for sci-fi epic Avatar and a strong summer release schedule will help revive flagging sales.

Reporting a 13.2 per cent slump in like-for-like sales at its core UK and Ireland retail chain, the group yesterday said it still expected to meet full-year profit forecasts.

Chief executive Simon Fox described the prospects for entertainment markets going into the new financial year as "more encouraging".

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He said James Cameron's blockbuster Avatar, released on Blu-ray and DVD this week, was expected to be one of the biggest selling movies of the year, while forthcoming releases included Sherlock Holmes, Alice in Wonderland and Toy Story 3.

Fox said the music line-up was also strong, with Robbie Williams, Duffy, Cheryl Cole and Amy Winehouse releasing CDs, while in games, this year sees the release of motion sensor controllers and related software for the major consoles.

The group also highlighted an improvement in recent sales trends at its Waterstone's book-selling business, which is under the new leadership of Dominic Myers after it branded the division's Christmas performance as "unsatisfactory".

During the 16 weeks to 24 April, like-for-like revenues were down by 4.8 per cent, compared with a drop of 8.5 per cent in the five weeks to 2 January.

At Waterstone's – which has struggled due to the recession and poor sales of usually lucrative big-name autobiographies – the group aims to increase non-book sales from 6 per cent to 10 per cent in the next three years.

The plan will see more stationery and gifts on the bookseller's shelves as it looks to capitalise on its position as "the last remaining specialist bookseller on the high street" following the collapse of rival Borders late last year.

Shares in HMV, which runs more than 400 stores under its own name as well as 313 Waterstone's branches, fell 8.6 per cent to close at 72.3p.

Analysts expressed some concern at the 13.2 per cent slide in sales at HMV music stores in the 16 weeks to 24 April. That compares with a 1.4 per cent rise over the festive trading period.

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Nick Bubb, retail analyst at Arden Partners, said: "Until the core HMV business sees some better trading, 2010-11 profit forecasts will edge down and the shares are likely to remain under a cloud.

"If HMV can't get re-rated then it will get broken up or bid for by private equity."

Stripping out a 2 million property profit, broker Numis Securities said it had lowered its forecast for annual profits to 72.5m, from 74.9m a year earlier. It also lowered its forecast for 2011.