HMV Group today (Jan. 18) reported first-half sales increases but sounded a note of caution about the economic outlook in its U.K. power base.

HMV Group today (Jan. 18) reported first-half sales increases but sounded a note of caution about the economic outlook in its U.K. power base.

In the 26 weeks ended Oct. 23, the company had total sales of £760.2 million ($1.42 billion), an increase of 3.6% on the same period in 2003. Operating profit was up slightly to £18.4 million ($34.4 million).

HMV also released Christmas trading figures, saying sales were up 10.9% for the five weeks ended Jan. 8, compared to the same period in 2003-04.

"Following a good first half of the year, the group delivered a strong performance at Christmas," HMV Group CEO Alan Giles says in a statement. "Market-share performance in all product areas was good, demonstrating the continuing resilience of our specialist formats in highly competitive conditions."

He adds: "Whilst trading at Christmas was strong, we take a cautious view of the outlook for the U.K. consumer economy." Despite his reservations, Giles says the group expects the U.K. economy to "prove sufficiently resilient for us to meet our financial targets for the full year."

The HMV U.K. & Ireland division accounted for £383.1 million ($716. 2 million) of group sales in the first half, up 6.1% on the same period in 2003. Comparable-store sales at the division were up 1.2%. However, operating profit fell 7.7% to £15.4 million ($28.8 million).

HMV Asia Pacific division saw sales fall 2.2% to £124 million ($231.8 million), but operating profit rose 20.4% to £1.1 million ($2.06 million). HMV attributes this to "tight cost control and a small improvement in gross margin."

HMV North America saw sales fall 0.6% to £61.2 million ($114.4 million). However, the closure of the group's loss-making U.S. stores and a DVD-driven 13.3% increase in comp-store sales in its Canadian outlets resulted in a £500,000 ($935 million) operating profit in North America. A £1.8 million loss ($3.4 million) was reported in the first half of 2003.

Canadian stores displayed the group's strongest comp-store sales growth in the five-week Christmas period, with a 21.6% rise.

The continuing resilience of HMV U.K. & Ireland in the first half was underpinned by the ongoing sales revival of the group's bookselling chain, Waterstone's. First-half sales at the 189 U.K. Waterstone's stores rose 3.8% to £191.9 million ($358.8 million). However, operating profit fell by £1.2 million ($2.24 million) to £1.4 million ($2.6 million).

HMV continued to reduce its net borrowings during the 26-week period, from £138.5 million ($259 million) to £60 million ($112.2 million). According to Giles, HMV "continues to be highly cash generative and is now in a position to accelerate the return of cash to its shareholders through an increase in the dividend and, as and when appropriate, a program of on-market share buy-backs."

On the London Stock Exchange, HMV Group shares fell to £2.46 from their previous close of £2.54 shortly after the interim results were published but had rallied to £2.52 by morning trading.

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