Simon Fox, the group chief executive, will take on Mr Knott's role while a replacement is found, HMV said.

Mr Knott, who HMV said was standing down by mutual consent, joined the company in 1990 and was appointed to the board in August 2005.

The retailer blamed a difficult market for its disappointing performance, saying "profound changes" were taking place. It said it would announce the results of a strategic review in March.

However, there was some good news for the group, which reported an improved performance over Christmas.

HMV said total sales for the group were up 10.3 per cent in the five weeks to January 6, including a 0.8 per cent decline in like-for-like sales.

In the UK & Ireland total sales were up 3.7 per cent, including like-for-like
growth of 0.7 per cent.

HMV announced a pre-tax loss before exceptional items of £29.1 million for the six months to October 28.

Its pre-tax loss including exceptional items was £36.4 million. This compared with a pre-tax profit of £200,000 in the same period last year.

Group sales grew to £767.2 million from £759.7 million in 2005, HMV said, as growth from new stores and the acquisition of the Ottakar's book chain offset a 5.5 per cent decline in like-for-like sales.

Mr Fox said: "The actions the group has taken to improve its competitive position are yielding benefits, but these are not sufficient to offset the profound changes taking place in our markets.

"We will do more to build upon the initiatives taken in 2006 to drive the business forward, and we will be updating the market with those plans in March."

The retailer said that while the national launch of simplified, lower pricing in September had enabled HMV UK to increase market share on CD albums, conditions in the music and DVD market, including digital downloading, were weak, with the value of the UK music market declining by 13 per cent.

HMV also reported strong online growth, with first-half sales on its website up by 170 per cent compared with last year.

It said that it was making progress with the integration of Ottakar's which it acquired in July.

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