Games drive record HMV growth

HMV emerged as one of the biggest high-street winners for the tough Christmas period as the boom in video games and the collapse of competitors helped the retailer record its best-ever like-for-like sales growth.

The strong performance surprised many in the City. Shares in HMV, believed to be the most heavily “shorted” stock in London, rose 4p to 105p. More than a third of the company’s stock is on loan, according to Data Explorers, a company that tracks short selling, as traders bet against a recovery.

Overall like-for-like sales growth of 9.4 per cent in the five weeks to January 5 caught out those with a negative view as HMV rode the video games wave and profited from the demise of competitors such as Music Zone and Fopp.

Simon Fox, chief executive, acknowledged the positive effects but said the recovery was “much more than that” adding that underlying sales excluding games rose and market share also rose against surviving rivals.

HMV’s sharper focus on games and technology resulted in total sales rising 9.9 per cent. Mr Fox said: “The results speak for themselves and we feel we are one of the winners” over the Christmas period.

He forecast earnings would be at the upper end of market expectations. The consensus of pre-tax profit forecasts for the year to April 2008 was £43m to £53m ($104.5m).

HMV UK & Ireland, the music stores business, saw total sales rise 16.1 per cent, with like-for-like growth of 14.1 per cent.

The games business, which now represents about 18 per cent of sales, saw demand for both consoles and games soar over the holiday period. HMV has sought to deal with the dwindling market for CDs by refocusing on video games, DVDs and technology products such as MP3 music players.

Stores are being refurbished to include juice bars, gaming areas and download pods. Although the new stores had only minimal effect on the Christmas period, Mr Fox said they had “performed well”.

Like-for-like sales at Waterstone’s, the book chain, rose 4 per cent on releases such as Nigella Lawson’s recipe book and divisional gross margins improved by 30 basis points.

Nick Bubb, analyst at Pali International, said: “The business has seen an amazing turnround from a year ago when HMV seemed doomed and management must get some credit for the operational initiatives which have moved things forward.”