HMV core sales fall 1.8%

U.K. retailer announces a deal to boost its digital business

LONDON -- Music, books and games retailer HMV Group posted a 1.8% fall in underlying sales for the first 18 weeks of its financial year and announced a deal to boost its digital business.

Chief executive Simon Fox also played down media speculation he might leave the firm to head broadcaster ITV or retailer Marks & Spencer.

"I'm completely committed to staying with HMV," he told reporters on Thursday.

HMV, which runs music, DVD and video games shops under its own name as well as Waterstone's bookstores, said sales at shops open over a year fell 1.8% in the 18 weeks to Aug. 29.

Like-for-like sales in the U.K. and Ireland rose 1.7%, helped by big market share gains following the demise of rivals Woolworths and Zavvi around the end of last year.

However, this was offset by weak sales of video games, a 3.4% drop in like-for-like sales at Waterstone's and a 12.6% decline in underlying sales in international markets.

Fox said trading conditions were tough, but was upbeat about prospects for the coming months, helped by recent price cuts in games consoles, new books from Jamie Oliver and Dan Brown and the release of remastered albums by The Beatles.

Nomura analysts kept their full-year profit forecast of £74.7 million ($122.3 million), with a £2 million ($3.3 million) cut to their international estimate offset by an upgrade for the U.K..

Altium's David Stoddart, however, was concerned the performance in the U.K. might not make up for the weakness abroad and at Waterstone's.

At 9:40 a.m., HMV shares were down 1.6% at 112.9 pence, lagging a small rise on the FTSE midcap index.

HMV, which faces the same competition from supermarkets, online retailers and digital downloading that led to the demise of Woolworths and Zavvi, has responded by cutting costs and widening its focus.

It has entered the live music and ticketing markets, is trialing digital cinemas in partnership with Curzon and selling mobile phones in a deal with France Telecom's Orange.

The firm said on Thursday it was buying a 50% stake in digital media firm 7digital for £7.7 million ($12.6 million) in cash.

The deal will give it access to industry-leading technology, a catalogue of over 6 million digital music tracks and boost its position in the digital books market, it said.

"We believe this has the potential to put HMV's digital content on the front foot for a change, rather than playing catch-up to market developments," said KBC Peel Hunt analyst John Stevenson.

Fox said HMV planned to tackle weakness in its international markets -- Canada, Hong Kong and Singapore -- by broadening its product offering as it has done in the U.K. by, for example, selling more computer games.
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