HMV profits from demise of rivals Zavvi and Woolworths

Music and games sales rise but Waterstone's struggles

The entertainment retail group HMV has vowed to drive home its market-leading position this year after the collapse of its rivals, as it posted robust annual profits and sales growth.

HMV, which runs the eponymous chain and the bookseller Waterstone's, benefited not only by grabbing sales from now defunct retailers, such as Woolworths, but also by acquiring 25 stores from Zavvi, another failed rival. HMV UK & Ireland's performance was further boosted by a surge in sales of computer games and resilient music sales, but Waterstone's continued to endure tough trading on the high street.

Simon Fox, the chief executive of HMV, said: "We are working hard to maximise the market share opportunity that has arisen from the withdrawal of competitors." The group trumpeted a 11.5 per cent rise in pre-tax profits, before exceptional items, to £63m for the year to 25 April, and analysts believe the demise of its rivals will give its figures another shot in the arm this year.

John Stevenson, an analyst at KBC Peel Hunt, said: "For the coming year, we believe the group can deliver material sales and profits benefits from the collapse of Woolworths and Zavvi, noting the sales transfer is in line with forecasts at this time." Mr Stevenson said Woolworths and Zavvi had annual entertainment sales of about £800m.

The entertainment retailer's robust trading demonstrates how some retailers are prospering from the demise of rivals during the downturn, although HMV has recently moved to diversify its operations into the live music market through a joint venture with Mama Group, as well as strategic partnerships with Curzon for cinemas and Orange for mobile phone concessions in its stores, which it will start rolling out this week.

For the year to 25 April, HMV UK & Ireland posted like-for-like sales up by 1.9 per cent. The retailer added that sales of game and technology sales now account for 24 per cent of total sales – boosted by sales of Grand Theft Auto last year – up from 14 per cent at the beginning of its three-year plan in April 2007. HMV said that its unit sales of music grew by 5 per cent, outperforming the broader UK market, where volumes declined by 3 per cent. HMV's total sales jumped by 4.4 per cent to £1.96bn, and group like-for-like sales declined by 0.4 per cent. However, underlying sales at Waterstone's fell by 3.8 per cent over the year, in a declining book market. But Mr Fox said that publishers were feeling more bullish about the year ahead, citing a strong pipeline of books from the autumn onwards, including Dan Brown's new novel in September.

Like-for-like sales at the group's international division, which includes 129 HMV stores in Canada, fell by 3.4 per cent. HMV will pay a final dividend of 5.6p, making its total dividend unchanged at 7.4p.

Sales of Michael Jackson albums outstrip Elvis and Lennon

HMV has revealed that sales of Michael Jackson's albums have rocketed since his death last week and have even surpassed posthumous sales of John Lennon and Elvis tracks.

Simon Fox, chief executive of HMV, said the retailer sold 50,000 Jackson albums last Friday and Saturday – an 80-fold increase. He said HMV had looked back at previous sales following the death of Elvis and the former Beatles star and Jackson's fans had bought "considerably more".

He added: "We were overwhelmed on Friday by customers coming in store and online."

The death of the King of Pop catapulted his Number Ones album to the top spot in the UK charts on Sunday, up from a 121st ranking the week before. The best-selling single download on hmv.com is his 1988 hit "Man in the Mirror".

HMV had been building up stocks of his albums ahead of Jackson's tour of London this summer, but had been "overwhelmed" by demand on Friday.

Mr Fox said: "We are out of stock in many stores. We are replenishing fast and we are hoping to have stock back in today."

Staff in HMV's flagship store on Oxford Street in London said the CDs on sale were the only ones remaining, although they said more were on order.

Fans have created a temporary shrine to the singer outside HMV's store in the Trocadero in central London.

James Thompson and Helena Nathan-King