World Cup puts boot into HMV sales

Music store and bookshop owner HMV became the latest retailer to count the cost of the World Cup as it reported plummeting sales today.

HMV said like-for-like sales at its music stores were down 17% in the nine weeks to July 1 while they fell 6% at its Waterstone’s bookshops.

It said June was particularly bad because shoppers deserted the high street to watch the football.

It also blamed its ongoing struggle to compete with supermarkets and internet firms such as Amazon which sell books and CDs at greatly discounted prices.

HMV chief executive Alan Giles, who is due to retire at the end of 2006 after nine years, said: “As we expected, trading conditions in the first few weeks of the new financial year have remained difficult.”

Panmure Gordon analyst Philip Dorgan said the trading figures were “very disappointing” while Richard Ratner, of Seymour Pierce, branded them “pretty appalling”. Shares in HMV fell 3%.

The update came as HMV posted a 6% fall in like-for-like sales across the group for the year to April 29 – sending pre-tax profits down 21% to £98.2m (€141.3m).

HMV also ditched the name of newly acquired Ottakar’s today as it released details of the bookshop’s merger with Waterstone’s.

HMV will close “a handful” of bookshops where the two companies overlap as well as an Ottakar’s office in Salisbury and two in London.

The restructuring, which will see Ottakar’s renamed Waterstone’s and is set to save £10m (€14.4m) over the next two years, could result in around 200 job cuts.

HMV hopes the £62.9m (€90.5m) acquisition of Ottakar’s will help boost sales and profits as it fights to recover market share lost to supermarkets and the internet.

Shares in HMV have fallen28% since July 2005 and dipped to 168p today – well below the 210p-a-share approach from private equity firm Permira it rejected earlier this year.

HMV has also fended off an approach for Waterstone’s from the bookshop’s founder Tim Waterstone.

Chairman Carl Symon said the UK retail market was “highly demanding” last year.

“The most popular entertainment and book titles were impacted by rapidly growing competition from supermarkets, while a pronounced shift in consumer preference to buying online put pressure on the deeper range of product,” he said.

HMV said that, despite the “challenging conditions”, it will raise its annual dividend by almost 9% to 7.4p a share and return up to £100m (€143.9m) to shareholders in the next two years through share buybacks.

Operationally, the Maidenhead-based group unveiled plans to roll out a new store format which it piloted at five HMV stores in south Wales and one in Kingston upon Thames.

The new format revolves around a simpler store layout and major price cuts, which has seen the price of chart CDs slashed to £7.95 (€11.40), while DVDs have been reduced to £12.95 (€18.60).

It also involves clear price bands for its back catalogue – “the bedrock of HMV” – with CDs selling for £5 (€7.20), £8 (€11.50), £10 (€14.40) or £13 (€18.70).

A company spokeswoman said: “It has been so successful that HMV has seen an 8.4% uplift in sales at those stores, and a dramatic increase in footfall.”

HMV said it had secured deals with suppliers to lower prices without reducing profits margins excessively and will roll out the scheme across the UK by September.

HMV said it will look for further growth at hmv.co.uk where sales have more than doubled and will launch waterstones.com this autumn.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the company “remains in a difficult place” but said its shares could be boosted by a further approach.

“HMV continues to be attacked from all angles and it remains unclear whether they are fully sure which way to turn,” said Mr Hunter.

“The increasing encroachment of internet trading is threatening both its core music and book sales and although Waterstone’s plans to launch its own online offering this autumn, it will be joining a crowded marketplace.

“Pricing pressure from the supermarkets is also exerting downward pressure and any synergies from the Ottakar’s acquisition are some way off.”