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HMV to meet profit forecasts despite sales fall

HMV to meet profit forecasts despite sales fall
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First Published: Thu, Apr 29 2010. 04 11 PM IST
Updated: Thu, Apr 29 2010. 04 11 PM IST
London: British music, DVD, games and books retailer HMV said it would meet full-year profit forecasts, with better margins and tight cost control offsetting a sharp fall in fourth-quarter sales.
The group, which runs over 400 stores under its own name as well as 313 Waterstone’s bookstores, also said on Thursday a strong summer release schedule gave it confidence that sales trends would improve.
“Prospects for the entertainment markets going into the new financial year are more encouraging,” chief executive Simon Fox told reporters.
He said sci-fi epic Avatar, released on Blu-ray and DVD this week, was expected to be one of the biggest selling films of the year, while forthcoming releases included Sherlock Holmes, Alice in Wonderland and Toy Story 3.
Fox said the music roster was also strong, with Robbie Williams, Duffy, Cheryl Cole and Amy Winehouse all releasing albums, while in games, this year sees the release of new motion sensor controllers plus related software for the major consoles.
Shares in HMV, which have fallen 47% over the last year, were down 6.5% at 74 pence at 0913 GMT, after the firm said sales at HMV stores in the UK and Ireland open over a year fell 13.2% in the 16 weeks to 24 April, having been up 1.4% in the 10 weeks to 2 January.
“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,” said Nick Bubb, analyst at Arden Partners.
“If HMV can’t get re-rated then it will get broken up or bid for by private equity,” he added.
HMV, which faces the same competition from supermarkets, online retailers and digital downloading that caused rivals Woolworths, Zavvi and Borders UK to fall during the recession, has responded by cutting costs and widening its focus.
Last month the firm said it was targeting earnings growth over the medium term by increasing sales of new products in music, visual and games and raising its presence in live music and ticketing.
Fox blamed tough comparative numbers, reduced levels of promotional activity and severe weather at the start of the period for the recent sales slump.
“This was the quarter where the supermarkets were in disarray last year following the collapse of the EUK supply chain, we were advantaged by that (last year),” he said.
He attributed 3-4% of the sales fall to a particularly tough games market, down over 20 percent year-on-year during the period.
“We took the decision to trade like-for-like sales for margin by scaling back our usual campaign activity and tightly managed our costs,” said Fox, forecasting a 50 basis points rise in the division’s gross margin for the 2009/10 year.
Underlying sales at Waterstone’s fell 4.8%, an improvement on its Christmas performance, reflecting the initial impact of new management and turnaround initiatives.
Prior to the update analysts were forecasting a consensus pretax profit of £74.5 million ($112.9 million) for the 2009/10 year, up from £63 million in the previous year.
Britain’s retailers are generally slowly emerging from a deep recession, but many are wary that steps to cut government debt after the 6 May general election, such as tax rises and public spending cuts, will hit consumer confidence, and some fear a double dip.
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First Published: Thu, Apr 29 2010. 04 11 PM IST