HMV's profit margins fall after move to slash DVD and CD prices

Cheaper CDs and DVDs at HMV have put profits at the retailer under fresh pressure but lifted its market share in both categories back above the level when it started to run into trouble.

The retailer, which is struggling to fend off internet rivals and supermarkets, disclosed yesterday that its gross profit margins had fallen by 250 basis points during the past 12 weeks - the worst-case scenario it had painted back in July. This followed its decision to cut the price of most of its back-catalogue CDs and DVDs to between £5 and £10.

Speaking on his last day as chief executive, Alan Giles said: "It was a big and costly adjustment to make but it is a one-off that puts us in a more competitive position." Simon Fox, the former managing director of the electricals chain Comet, succeeded Mr Giles after yesterday's annual meeting.

Although the new pricing structure was Mr Giles' initiative, the outgoing chief executive said he was confident it would remain in place.

The group said like-for-like sales at its HMV chain in the UK and Ireland fell by 5.4 per cent in the 12 weeks to 23 September. This was after a 16.7 per cent fall at the music chain during the first nine weeks of its financial year. Its Waterstone's chain posted a 3 per cent underlying sales fall during the period, which was also an improving trend. For the year to date, group like-for-like sales are down 3.3 per cent.

Its shares rose 5.75p to 164.75p on relief that the underlying sales performance had not deteriorated.