HMV stages a fightback

"It's definitely going to be a compilation Christmas," HMV chief executive Simon Fox declared.

"But that's no bad thing because that's what sells at this time of the year. It's also probably the best Christmas for DVD releases I have ever seen.

"There are box-office smashes like The Simpsons Movie and The Bourne Ultimatum, then good family stuff like Harry Potter 5 and Shrek 3 along with some good TV series box sets."

Forced to report his first-half figures bang in the middle of the group's most important selling period, Fox was being fairly cagey about current trading.

He said: "The big days are still ahead of us. November and December account for 40% of our annual sales, and each week within those months sees a 25% rise on the previous one. We're well-prepared, and all I can say is that we are exactly where we expected to be in terms of current trading."

If that's the case, Fox - brought in from Comet just over a year ago - is starting to counter the ever-growing competition from supermarkets and downloads in its traditional markets. He is also shaking up sister bookshops chain Waterstone's.

Today's results, for the half-year to 26 October, show HMV reducing losses, cutting costs and shifting into higher-growth sales areas such as video games and MP3 and MP4 players.

Pre-tax losses fell from £29.2 million to £28.1 million. Total sales, excluding the sold-off Japan operation, are up 9.5% at £729 million. Group like-for-like sales, which dropped 6.1% a year ago, rose 5% this time.

The biggest improvement came at the HMV chain itself, where like-for-like sales are up 9.2%. That reflects the shift into technology, which accounted for 6% of sales, and gaming, with 15%. HMV has had to accept lower margins on sales of games consoles such as the Wii and PlayStation 3 in the hope the next three years will produce good sales of higher-margin gaming software. New-format stores have been tested at Merry Hill in the West Midlands and Tunbridge Wells in Kent. They are lighter and brighter than HMV's traditional grey-and-purple look, and include a central hub of iMacs where customers can play games and download music.

Fox said: "It's early days yet, but the first indications are good with better footfall and more spending. We plan to open another five early next year, including two at Heathrow Terminal 5."

Waterstone's sales were virtually unchanged if one excludes the launch of the final Harry Potter novel, which added 2% to the chain's revenues. Fox is halfway through closing 10% of Waterstone's outlets following its takeover of rival Ottakar's last year.

His launch of a Waterstone's loyalty card has gone well with 700,000 customers signed up since September.