The Bookseller.com

19th July 2008

Potter boost for 'diluted' Waterstone's

12.12.07 Philip Jones

Waterstone's has reported strong sales growth in its latest half-year thanks to the chain's acquisition of Ottakar's a year earlier and the success of the final Harry Potter book. However, the growth did not prevent the chain suffering what it described as "some dilution in market share" over the period thanks to its store closure programme.

Waterstone's saw sales rise by 8.7% to £244.5m in the half-year to 27th October 2007, with like-for-like growth of 1.4%. The sales growth was driven by the acquisition of Ottakar's in July 2006, and the impact of Harry Potter. Without Potter the chain's like-for-like sales would have fallen by an estimated 0.6%.

Waterstone's operating loss for the period was £8.9m, £0.5m higher than last year. The Ottakar's acquisition and related store closure programme made an additional £1.5m profit contribution in the period. However, the group said that this was more than offset by the underlying like-for-like sales performance and operating cost inflation of about 2%. The business also took a £2.7m exceptional hit from closing three stores at a combined cost of £2.7m--a further four closures have already been committed to as the chain seeks to reduce its floor space by 10%.

Initiatives to drive sales growth remained on track, the business said. Its loyalty card had attracted 700,000 members, almost halfway to the three-year target of 1.5m members, while Waterstones.com continued to make "good progress", and by the end of the period had attracted over 1.7 million site visits.

Simon Fox, chief executive of parent HMV Group, called the results of the group "improved". Total sales at HMV Group's continuing operations increased by 9.5% on the same period last year, with like-for-like sales growth of 5.0%. HMV UK & Ireland's total sales increased by 12.9%, including a like-for-like increase of 9.2%. The group generated a seasonal operating loss before exceptional items of £21.5m in the period (2006: £24.8m).

Fox said: "Less than a year into our three year strategic plan, we are pleased with progress. The group's first half was driven in particular by like for like sales growth in HMV UK & Ireland, where we are successfully exploiting the high growth games and technology categories and increasing our share of music and DVD. At this stage, the most important days and weeks of our financial calendar are still ahead of us, and our stores and websites are very well prepared for Christmas."

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