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HMV, the music-to-books retailer, has blamed the imploding CD market for a 73 per cent slump in pre-tax profits.
Shares in the retailer fell 4 per cent yesterday after the group failed to convince investors that it was on the road to recovery, despite making a strong start to the financial year.
The company, which owns the Waterstone’s book chain, is at the start of a three-year recovery plan after pretax profits fell to £21.6 million for the year to April 28, 2007, from £80.2 million in the previous 12 months.
Profits were dragged down by a poor performance in the UK and Ireland, where operating profits plunged 59.8 per cent to £24.3 million. Like-for-like sales, excluding gains from UK and Irish stores opened during the year, fell by 3.4 per cent.
The company attempted to stem the decline last year by cutting its prices, which sent annual sales up 3.8 per cent to £1.8 billion, though like-for-like revenues, which strip out gains from new stores opened during the year, fell by 3.5 per cent.
HMV said the slump was a result of consumers increasingly opting to download music. As part of its turna-round plan, HMV is shifting its products mix to compensate for falling CDs sales, by selling more electrical goods such as MP3 players as well as investing in its online sales by offering music and video downloads.
By 2010, HMV hopes 20 per cent of its sales will be online and that 13 per cent of stores sales will be generated from electrical products.
Simon Fox, chief executive, said HMV had not been hit by the effects of rising interest rates on shoppers’ budgets. “It is getting tougher for customers but we are yet to see that,” he said.
HMV also disclosed yesterday it was in talks with a potential buyer for its Japanese chain that could fetch as much as £75 million. The company will use the proceeds to pay down some of its borrowings after its net debt rose from £15.6 million to £130.6 million following the acquisition of Ottakar’s, the book chain.
HMV will pay a final dividend of 5.6p, making a total dividend of 7.4p, the same return as last year. Its shares fell 3.28p to 118p yesterday.
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hmv are loosing too much monet they will end up loosing the business if there not careful places like teco and online downloads arnt the problem its hmv's prices im a student and i cant afford these prices all the time
Aaron, worcester, england
I was a loyal customer of HMV, always the music specialists' store. But, you know when you are being exploited, and their prices in the current business context are laughable. A large % of their losses are down to price, not downloading. Buy your CD's online - you can always find what you want at a far better price than at HMV. I checked the HMV website only last week, very poor selection and prices, by comparison to other online main players. As for future downloading iTunes occupies on the net the space HMV did on the high street, and they have no hope of catching them now. HMV need to check their own head instead of blaming brighter, sharper competitors. If your offer is uncompetitive, your customers go elsewhere. HMV needs less fat cat directors, and more bright sparks with ideas. The market has moved on along with HMV's previously loyal customer base.
Paul H, Reading, England
Had HMV and EMI been a private companies the profits in both companies would have been okay in view of the change going on the the current market place,but they have to deal with the whims of there shareholders.These are two great british companies,it would be a shame if the home of the Beatles recordings fell in to American hands
Malcolm Allen, Chorley, England
I agree wholeheartedly with the above comment and would also like to add that if the company could not see the level of sales growth through downloads rising at the rate it has versus the CD market then more fool them. What is the point in having a network of shops throughout the country including several in each of our larger cities when it's competitors have a warehouse and a distribution contract.
Gilchro1, Perth, Scotland
This will probably we the first of many record labels that will have difficulties. Ufortunately for them few will have any sympathy, as with all large companies, they have tried to hang on to their monopolies, and when new technologiy came along they have tried to stifle its use and innovation instead of trying to use it to their and their customer's benefit. The previous poster is correct in pointing out that there were sky high charges for old items, that along with the likes of music companies telling you what you could and couldn't play your pruchased music on, it's little wonder that people will try to get cheaper music where they can.
Rob Bain, Derby UK,
Maybe if HMV treated their employees better and didnt boycott superstars like the snobs they are, then they would have my sympathy.
ExEmployee, Vancouver, Canada
I totally agree with the sentiments above. It is ridiculous that record companies can charge £15+ for 40 year old recordings, it is pure greed. The major names have done their best to stop internet sales of cd's, where you could buy them for around half the price, in the hope to regain their dominant position. This will only encourage more downloading. This is to the detriment of people who want good quality recordings at resonable prices, and not feel riped off. MP3' are not " HiFi "
R Lewis, Llandeilo,
I have absolutely no sympathy for HMV's plight. It's not so very long ago that it held to ransom music lovers (and film)by charging sky high prices for titles that weren't the latest releases and were harder to buy from supermarkets etc....
Hence given the freedom of the internet giving a wider range of outlets people have voted with their feet (or mouse) and gone elsewhere. What goes around comes around. Unlucky.
d seilly, wakefield, west yorks