DVD Demand Keeps HMV Profits On The Rise

An aggressive program of store openings plus public demand for DVD allowed HMV Group to increase profits and cut £100.8 million ($182.7 million) off its net debt in the past financial year.

An aggressive program of store openings plus public demand for DVD allowed HMV Group to increase profits and cut £100.8 million ($182.7 million) off its net debt in the past financial year.

In its results for the 52 weeks ending April 24, published today, the U.K.-based retail giant reported that its year-end net debt had fallen from £158.6 million ($287.5 million) to £57.8 million ($104.8 million). Last year, the group reported a similar-sized reduction, down from £253.6 million ($459.7 million). It plans to make another £50 million ($90.6 million) repayment in July.

The group opened 37 stores during the financial year; 15 were opened by HMV U.K. & Ireland, and 10 by HMV Japan. The remainder were U.K. stores opened by bookseller Waterstone's. Overall sales rose 5% to £1.79 billion ($3.24 billion), although like-for-like sales were a more modest 1.8%.

The performance generated a double-digit rise in operating profit for the second year running. In 2002/2003, profit rose by 12.1%. In 2003/2004, it was up 11.1% to £131.5 million ($238.4 million). Group CEO Alan Giles says the results underline "the competitiveness of the group's specialist retailing model."

By year-end, HMV U.K. & Ireland operated 179 outlets. They provided the engine for the group's drive towards growth in sales and profits. The division's sales grew 7.2% to £930.1 million ($1.69 billion). Comparable stores growth was 1.9%. Boosted by DVD, video accounted for 43% of sales in the U.K. & Ireland.

HMV Asia-Pacific reported a 1.4% increase in sales to £280.9 million ($509.2 million), although like-for-like sales were down 4.7%. In its report, the group says a "lack of large-selling domestic J-Pop releases" in Japan and heavy discounting in the Australian DVD market had a negative impact on its sales. HMV has 45 stores in Japan and 34 in Australia. It plans to open 8-10 new Japanese outlets in 2004/2005.

HMV North America closed four of its seven U.S. stores during the financial year. It closed two more after the year-end, and will shutter its final U.S. outlet by the end of 2004. As a result, sales fell 2.2% to £153.6 million ($278.4 million), although like-for like sales grew 1.9% thanks to a healthy Canadian performance.

The company has 100 stores in Canada. It reported strong demand for DVD from Canadian consumers, which boosted the North American operating profit to £2.4 million ($4.3 million). In 2002/2003, the division reported an operating loss of £3.5 million ($6.3 million).

Outside its music and video business, Giles says he is particularly pleased with "the excellent improvement at Waterstone's, where we believe there is still more growth to come." The U.K.-based bookseller had consistently under-performed until recently, prompting a lengthy operating review headed by group COO Brian McLaughlin.

The group claims that the benefits of strong Christmas 2004 trading were amplified by the effects of better buying practices and tighter control of shrinkage. Waterstone's sales grew 5.6% to £428.9 million ($777.4 million). Like-for like sales growth was 4.8% and operating profit was 8.4% up at £26 million ($47.1 million). HMV Group operates 193 Waterstone's outlets.

HMV Group also published a trading update for the eight weeks ended June 19 which showed sales up 3.9% on the same period in 2003. Its shares closed at £2.42, up 1.68% on the previous day. The group floated on the London Stock Exchange in May 2002.

The Biz premium subscriber content has moved to Billboard.com/business.

To simplify subscriber access, we have temporarily disabled the password requirement.