HMV defied its City critics yesterday by posting a record Christmas, thanks to the clamour for next-generation video game consoles.

Shares in the embattled retailer closed up 4 per cent, or 4p, at 105p as Simon Fox, the chief executive, said that pre-tax profits in the current year were likely to be at the top end of expectations.

Like-for-like sales at stores in the UK and Ireland rose by 14.1 per cent in the five weeks to January 5, led by a 50 per cent surge in sales of video games and consoles such as PlayStation 3 and Nintendo Wii.

HMV, which is halfway through a three-year turnaround plan, said that gaming and technology now accounted for nearly a quarter of sales. Mr Fox said: “It was a gaming Christmas. Demand outstripped supply for the Wii and Nintendo DS. The Wii has been a great product and we were selling out within hours.

“We still see strong growth in gaming this year. People have bought the hardware and that will drive demand for the software.

“Gaming and technology could account for 30per cent of sales this time next year.”

Analysts had been expecting pre-tax profits of between £43million to £53million for the year to April 2008.

Nick Bubb, retail analyst at Pali International, increased his forecast by £4million to £56million yesterday.

“It would be wrong to get carried away but, despite the obvious long-term structural threats, management have done a good job of reinvigorating the HMV business,” Mr Bubb said.

However, other analysts claimed that the continuing growth of the internet could make it difficult for HMV to sustain the performance.

John Stevenson, an analyst at Shore Capital, said: “Our concerns centre on the future for the DVD and music market in the UK. We question how far the recovery strategy will progress before profit delivery peaks.”

Mr Fox joined HMV in September 2006, since when he has tried to reduce the chain's dependence on sales of CDs amid increasing competition from supermarkets and the switch by consumers to downloading music from the internet.

Concept stores have been opened in Dudley and Tunbridge Wells, with far more space given over to gaming, download desks and smoothie bars. Mr Fox said that the stores' performance was a sound basis on which to expand the format.

He said that without the strong gaming performance HMV would have achieved like-for-like sales growth of 8.1 per cent on music and DVDs. HMV sold 13million DVDs over Christmas and CD sales rose despite a fall in the overall CD market.

“We have come a long way since Christmas 2006,” Mr Fox said. HMV's overseas stores suffered a 0.6 per cent decline in like-for-like sales.

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