Music store and bookshop owner HMV reported plummeting sales yesterday as it continued to struggle to compete with supermarkets and the internet.
The retailer said like-for-like sales at its music stores were down 17 per cent in the nine weeks to July 1 while they fell six per cent at its Waterstone's bookshops.
The update came as it posted a six per cent fall in like-for-like sales across the group for the year to April 29 - sending pretax profits down 21 per cent to £98.2 million.
Like-for-like sales in the nine weeks ended July 1 fell 10.1 per cent. This compares with a 5.8 per cent slump in the final 16 weeks of HMV's financial year.
Chief executive Alan Giles said the fall reflected "extremely weak music and entertainment markets" as new video and music suppliers postponed major releases during the football World Cup.
HMV said it would introduce price cuts in its music stores by September this year and ramp up its online business as it looks to improve sales.
It also said it expected to m ake cost savings of £10 million from the acquisition of bookshop Ottakar's, which it agreed to buy for almost £63 million in May.
Mr Giles, who plans to retire at the end of the year after almost nine years with the company, said: "As we expected, trading conditions in the first few weeks of the new financial year have remained difficult.
"However, we are making excellent progress with a two-year programme of initiatives which we antic-ipate will begin to improve performance during the crucial Christmas trading period and ultimately transform the group into a world class multi-channel retailer."
He said the strategy did not imply HMV was trying to mirror the price-cutting approach of major retailers and online competitors given the company was a specialist offering wider ranges.
However, he said the company needed to cut prices on DVDs, CDs and books because consumers remain so focused on value.
"The supermarkets have raised their game on pricing over the last few years. We had allowed ourselves to become a touch uncompetitive," he admitted.
HMV said that, despite the "challenging conditions", it would raise its annual dividend by almost nine per cent to 7.4p a share and return up to £100 million to shareholders in the next two years through share buybacks.
HMV said it will look for further growth at hmv.co.uk where sales have more than doubled and will launch waterstones.com this autumn.
Chairman Carl Symon said the UK retail market was "highly demanding" last year.
"The most popular entertainment and book titles were impacted by rapidly growing competition from supermarkets, while a pronounced shift in consumer preference to buying online put pressure on the deeper range of product," he said.
Shares in HMV have fallen 28 per cent since July 2005 and stand well below the 210p-a-share approach from private equity firm Permira it rejected earlier this year.
Mr Giles said HMV spoke carefully to its major shareholders after Permira's approach and they shared the board's view that there was more value in the business over the medium to long term.
HMV has also fended off an approach for Waterstone's from Tim Waterstone.
Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said the company "remains in a difficult place" but said its shares could be boosted by a further approach.
"HMV continues to be attacked from all angles and it remains unclear whether they are fully sure which way to turn," said Mr Hunter.
"The increasing encroachment of internet trading is threatening both its core music and book sales and although Waterstone's plans to launch its own online offering this autumn, it will be joining a crowded marketplace.
"Pricing pressure from the supermarkets is also exerting downward pressure and any synergies from the Ottakar's acquisition are some way off."
Numis Securities analysts, retaining their sell recommendation, said the latest sales update was "dreadful".