HMV 1st-quarter sales rise 5.8 percent

HMV Group PLC, music and books retailer, announced on Thursday its first-quarter sales rose 5.8 percent, as wet summer weather increased demand for CDs and readers devoured the final chapter in the Harry Potter series.

HMV said the 5.8 percent increase in same-store sales excluded the results from HMV Japan, which it sold last month. Total group sales for the first quarter were up 12.2 percent.

Chairman Carl Symon said the group had made a "pleasing start to the current financial year, with good momentum in sales, margins and cost management."

The company, which operates 422 HMV stores in Britain, Ireland, Hong Kong, Singapore and Canada, and 433 Waterstone's bookstores, said that the strong sales were in large part due to an unexpectedly buoyant DVD market as customers sought an alternative to a rainy summer in Britain.

Sales at Waterstone's were up 2.7 percent over the quarter, reflecting very strong sales of "Harry Potter and Deathly Hallows."

However, stripping out the impact of the final installment in the adventures of the boy wizard, same-store sales were flat. Sales at its international business dropped 1.6 percent.

"We believe HMV is still a business in structural decline and in our view the new initiatives are not sufficient to offset the forces of declining markets in both music and DVDs, strong price deflation and increased competition from both online retailers and supermarkets," Numis Securities said in a note.

Symon, however, was upbeat about the company's plans to overhaul its operations amid crippling competition from supermarket chains and online retailers, which often sell books and DVDs at a heavy discount, as well as music downloading.

HMV has revamped its Web site and this week opens its first "next generation" store trials and launches a Waterstone's customer loyalty card.

"Solid progress is being made on our strategic plans announced in March, including a successful disposal of HMV Japan for a consideration which the board believes represents best value for our shareholders," Symon said in a statement ahead of HMV's annual shareholder meeting.

Under a three-year turnaround plan, HMV expects to achieve annual cost savings of 40 million pounds (US$80.9 million; EUR59.5 million) by fiscal 2010 by simplifying its main HMV U.K. business and Waterstone's units supply chains, maximizing group buying and head office synergies as well as reviewing its store portfolio in Britain.

Symon said it is still early in the year and the group has "much work to do, but we expect to approach the key Christmas period in good operational shape and with exciting offers for our customers."

Shares in HMV were flat at 130 pence (US$2.63; EUR1.94) on the London Stock Exchange.