HMV Drops on Delayed Cost-Saving Program at Waterstone's Chain

By Loveday Morris

July 1 (Bloomberg) -- HMV Group Plc, the largest U.K. music retailer, slid in London trading after saying a cost-saving program at its Waterstone's book store chain will be delayed.

HMV fell as much as 6.2 percent in the U.K. capital after the retailer said savings from a new book warehouse won't start until fiscal 2010. Chief Executive Officer Simon Fox also said he was ``mindful'' of the ``challenging economic outlook going forward'' after the retailer reported a gain in annual profit.

``The top end of market expectation may possibly come back on the back of this,'' said Investec Securities analyst David Jeary, who has a ``hold'' rating on the stock. Analysts expect pretax profit of 68.6 million pounds ($137 million) for fiscal 2009, the average of 19 estimates compiled by Bloomberg shows.

HMV declined as much as 8 pence to 121.5 pence in London and traded down 5.6 percent at 123.25 pence as of 8:52 a.m. local time, the steepest drop since June 11.

``Having improved by 5 percent yesterday, we think there is little to push the shares further,'' Merrill Lynch & Co. analyst Jonathan Hogan wrote in a note to clients today. He has an ``underperform'' rating on the stock.

Net income climbed to 89 million pounds ($177.3 million), or 22 pence a share, in the year through April 26, from 16.1 million pounds, or 4 pence, a year earlier, the Maidenhead, England-based company said today. HMV booked a gain of 51.8 million pounds on last year's sale of its Japanese unit.

Second-half profit rose to 63.1 million pounds from 42.2 million pounds a year earlier, according to calculations based on the annual figures, helped by surging video games sales.

The retailer has installed downloading terminals in some stores and is dedicating more space to video games, which now make up 21 percent of sales, as demand soars for Nintendo Co.'s Wii, Sony Corp.'s PlayStation 3 and Microsoft Corp.'s Xbox.

To contact the reporter on this story: Loveday Morris in London at lmorris7@bloomberg.net
Last Updated: July 1, 2008 04:05 EDT