Ottakar's books a slow start

The prospect of a knockout bid for Ottakar's faded further yesterday after the bookstore chain revealed sales had continued to slump in the past two months.

Ottakar's, which last week brushed aside a lowball takeover approach from HMV, said like-for-like sales have fallen by 8 per cent during the first 16 weeks of its financial year. This continues the 8.1 per cent decline in underlying sales it reported in March although Philip Dunne, its chairman, said recent figures "suggest the slow start may be improving".

The group is still in talks with HMV over a possible offer and is thought to be holding out for a bid worth at least 325p per share. WH Smith is still thought to be hovering on the sidelines but has yet to comment on speculation that it is working on its own bid.

Richard Ratner, a retail analyst at Seymour Pierce, said: "Whilst the non-executives at HMV appear to be playing 'hard ball', it needs Ottakar's to achieve economies of scale; conversely Ottakar's needs a deal."

Shares in Ottakar's rose 8.25p to 301.25p on hopes that HMV, which was recently given competition clearance to combine Ottakar's with its Waterstone's chain, would raise its bid.

Although Ottakar's said it was on track to meet market estimates depending on how it fared over the Christmas period, Mr Ratner cut his pre-tax profit forecast to £1.8m from £2.5m for this year. He also slashed next year's to £2.5m from £3.5m.

A succession of profit warnings from Ottakar's and a management buyout attempt from its executive team last summer thrust the group into play. The group is under pressure from internet book retailers and the big supermarket chains. It also needs to overhaul its outdated IT systems. It is launching its own online book service this autumn in an attempt to claw back some of its market share. It said four new stores were planned for this year, three of which will open during its second half.