HMV today reported a 25% surge in annual profits as it gained market share, helped by the popularity of new games like Grand Theft Auto IV and Wii Fit.
Runaway demand for console games has helped the CD, DVD and game retailer, which also includes the Waterstone’s book chain, dodge the gloom seen on other parts of the high street.
“We had a terrific year for games last year, with growth of about 60%,” said Simon Fox, HMV’s chief executive. “In the year in, we’re ahead of where we planned to be. We’re riding the game growth curve, and we’re riding ahead of the curve.”
Like-for-like sales grew by 11.4% at HMV in the UK and Ireland while Waterstone’s sales were up 3.3% in the year to April 26. Since then, growth has remained strong thanks to new releases like GTA IV and Wii Fit, Nintendo’s exercise game for the Wii console. “A very hot product when you can get hold of it,” Fox said. Nintendo “are doing their best to keep up” with demand.
HMV, one year into a three-year turnaround plan, said profits before tax and exceptionals rose to £56.6m last year from £45.2m. It already predicted in May that profits would be at the top end of market expectations.
Its share of the UK games market, which increased by one percentage point to 8% by year-end, continues to grow. Its share of the music market has risen more sharply to 29% helped by the demise of rivals such as Fopp while its share of DVDs has increased to around 25%. But share gains will not continue at the same rate as HMV is up against “fierce competition” from supermarkets, particularly in DVDs and books, Fox said.
HMV has introduced a new range of technology products, dominated by digital music and video players. Games and technology now make up 21% of sales, compared with 14% a year ago. It is converting up to 15 stores to the “next generation” format featuring a social hub with access to entertainment websites, multiplayer games areas and kiosks. All new stores will open in the new format.
As the CD market continues to decline – CDs now make up less than 30% of HMV’s sales – it is seeking to replace them with new band merchandise such as T-shirts, caps and backpacks.
The retailer is looking forward to a “fantastic” Christmas for music, Fox said, with a strong lineup of new releases from Razorlight and Morrissey to Oasis and the Kaiser Chiefs.
The chairman, Carl Symon, who was appointed in February 2006, is stepping down at the company’s annual meeting on September 5. Fox insisted the relationship had been “constructive and positive” adding that when Symon was appointed “he felt he had a specific job to do in terms of changing the leadership and feels now is a good time to move on”.
Shares in HMV dropped 6.25p to 123.25p in early trading, a fall of nearly 5%. This erased the gains made yesterday, when HMV jumped 6.25p as traders anticipated a strong set of results.