The 88-year-old firm, which runs music, DVD and video games shops under its own name as well as Waterstone's bookstores, said on Tuesday it made profit before tax and one-off items of 63 million pounds in the year ended April 25.

Analysts' median forecast was 62 million in a Reuters Estimates poll of 18.

Sales from continuing operations rose 4.4 percent to 1.96 billion pounds and the dividend was kept at 7.4 pence a share.

"Whilst we are cautious about the economic environment, at this very early stage in the year we are confident of our plans for the current financial year," Chief Executive Simon Fox said.

HMV has benefited from the collapse of rivals Woolworths and Zavvi which, after years of struggling with competition from the internet and supermarkets, succumbed at the start of the recession.

HMV has responded to the competitive threat by widening its focus. It has entered the live music and ticketing markets, is trialling digital cinemas in partnership with Curzon and selling mobile phones in a deal with France Telecom's Orange.

HMV shares have lagged the UK retail index by 11 percent over the past year. They closed at 118.75 pence on Monday, valuing the business at about 485 million pounds.

(Reporting by Mark Potter; Editing by Jon Loades-Carter, John Stonestreet)