HMV profits halved, despite sales

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LONDON -- In a trading update for the eight weeks ending June 23, HMV Group Plc., Britain's largest specialist entertainment retailer, added a positive note to some tough annual results, revealing that same-store sales were up 3.8%, including an 8.8% increase in HMV U.K. & Ireland.

It also reported that there had been gross margin improvements in line with expectations.

As was widely predicted, HMV announced that annual profits before tax and exceptional items halved from £98.2 million ($196.5 million) to £48.1 million ($96.2 million) on sales up 3.8% to £1.9 billion ($3.8 billion).

The retailer also booked an increased exceptional charge of £26.5 million ($53 million) -- up from £18 million in 2006 -- reducing profit before tax even further, to £21.6 million ($43.2 million).

HMV spokesman Gennaro Castaldo was keen to stress that, unlike many of its rivals, "people tend to overlook the fact that we are still making a profit and recent results have been very encouraging."

U.K. specialist entertainment retailers have all struggled as competition from the Internet and supermarkets has depressed prices and shifted sales away from bricks and mortar outlets.

Reflecting on a difficult year for HMV, CEO Simon Fox said that HMV's turnaround plan was on track. "The benefits of our actions are beginning to come through and are reflected in the good start we have made to our new financial year," he said.

Separately, the company signaled its intention to sell DRM-free digital downloads via its Web sites beginning in September, meaning it will now be in direct competition with Apple's iTunes.

"We're excited to be making MP3 downloads available through HMV, as this is consistent with our ethos of giving our customers the widest possible access to music, however and whenever they wish to enjoy it," HMV E-Commerce director Gideon Lask said. "Music fans increasingly expect versatility and interoperability in the way they consume music, and we feel the time is right to acknowledge and act on this expectation."

The chain confirmed it is still in talks to sell its Japan unit. HMV shares rose in morning trade by 2.25 pence (4.5 cents) to 124.5 pence ($2.48).
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