Friday May 9, 12:39 PM
ROUNDUP HMV Group sees FY profit at top end of hopes
LONDON (Thomson Financial) - HMV Group Plc., the music, DVD, games and books retailer, forecast full-year underlying pretax profit at the top end of market expectations, as it reported better-than-expected second-half sales growth, boosted by
the robust games market.
But its shares reversed early gains to be 2 percent lower by midday as investors booked profits after the stock's good recent run.
Prior to Friday's trading statement, market expectations for the year to April 26, 2008, pretax profit were 46 million pounds to 58 million pounds.
For the 16 weeks to April 26, the group's total sales increased 11.9 percent and were up 10.1 percent on a like-for-like basis. Gross margins were 'well managed and in line with previous guidance'.
Like-for-like sales increased 13.8 percent at the 249-stores HMV UK & Ireland business, and were up 2.2 percent in the 130-store international division (HMV Canada, Hong Kong and Singapore).
Over the 16-week period, HMV UK & Ireland enjoyed unit growth in games of over 40 percent, particularly driven by demand for the Nintendo Wii.
'HMV has clearly benefited from a strong games market. However, we've continued to outpace this fast growing market,' chief executive Simon Fox told reporters.
He noted that stripping games out of the numbers, HMV UK & Ireland's like-for-like growth in the 16-week period was over 8 percent, reflecting accelerating market share gains in both music and DVD and rapid growth in the new technology product category.
Fox attributed the market share gains to improved campaigns, particularly over key seasonal gifting periods, such as Valentine's Day, Mother's Day and Easter, along with the rapid growth of HMV.com.
He reckons the retailer is winning market share from existing competitors -- on-line, the supermarkets, the generalists and from the other specialists.
He explained that while the UK/Ireland CD market in unit terms was down about 9 percent over the 16 weeks, HMV UK & Ireland was up 7 percent. Similarly, while the DVD market grew about 3 percent, HMV UK & Ireland was up over 20 percent.
In the new financial year, Fox expects the games market to stay strong and anticipates 'double-digit' like-for-like sales growth.
He also pointed out that the release schedule for CD's and DVD's is strong, with forthcoming releases including a new album from Coldplay and films such as No Country for Old Men and Bee Movie.
At the 315-store Waterstone's chain, like-for-like sales were up 6.6 percent over the 16 weeks.
The business benefited from a strong book market and improved campaigns on, for example, life-changing books, the success of its loyalty card, which now has 1.3 million members, and the accelerating growth of Waterstones.com.
Full-year total group sales increased 10.3 percent, with like-for-like sales up 7.3 percent. The group said it ended the year 'broadly debt free'.
A positive performance from its five 'Next Generation' HMV trial stores provides a basis for further roll-out.
In the new financial year, 10-15 existing HMV stores will be refitted in the new format and five new stores opened. Subject to the performance of these stores an accelerated refurbishment programme will be launched in 2009/10.
'As we complete the first full year of our three-year turnaround plan, we are ahead of where we expected to be,' said Fox, who joined the group in September 2006 and in March 2007 detailed plans to revitalise HMV's businesses and counteract a rapidly declining physical music market.
'We have made good progress driving forward our strategic initiatives to increase efficiency, revitalise our core business and establish new channels to market. We still have much to do, but I am confident that the group is well positioned for the next phase of our transformation.'
At 12:08 p.m., shares in HMV were down 2-1/4 pence at 147 pence, valuing the business at 593 million pounds.
Analysts at Dresdner Kleinwort downgraded their investment stance from 'add' to 'hold', pointing out that comparative numbers will be very tough in the run-up to Christmas 2008.
'While the strong games market should continue to drive momentum we think that further surprises on the upside could prove harder to deliver,' they said.
HMV will publish full-year results on July 1.
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