HMV Group Plc, the British music, DVD, computer games and books retailer, narrowed its first-half loss but said its markets had deteriorated since October.
"In particular, the book market has seen a marked deterioration in the five-week period to Nov. 29. Against this backdrop, our market share in all product areas has remained resilient," the group said on Thursday.
Chief executive Simon Fox said HMV was "very well prepared" for the important peak trading weeks ahead of it and should benefit in the medium term from the demise of Woolworths Group Plc.
He told reporters he was comfortable with analyst forecasts for the year to end-April 2009 pretax profit of between £58-million and £63-million, up from £56.6-million last time.
Freddie George, an analyst at Seymour Pierce, cut his current-year forecast to £58-million from £65-million and downgraded his recommendation to "sell" from "hold".
"Game sales ... are slowing, CD and DVD sales are up against difficult comparatives over the last 18 months and there is the long-term niggling concern that downloading will take ever greater sales of DVDs and CDs," he said.
Prior to Thursday's update, shares in HMV had fallen just 1 per cent over the last year, outperforming the FTSE Allshare Index by 85 per cent.
Although shares fell on Thursday by as much as 8.5 per cent, by 1100 GMT they were down about 0.5 per cent at 110.5 pence, valuing the business at about £448-million.
For the 26 weeks to Oct. 25 the group, which trades as HMV and bookseller Waterstones, made a pretax loss of £27.5-million.
This compares with analysts' forecasts of a loss of £20-million to £27-million and a loss of £28.7-million in the same period last year.
HMV traditionally posts a first-half loss, making the bulk of its profits in the run-up to Christmas.
The group continued to defy the gloom seen on most parts of the UK high street with a 3.5 per cent increase in total sales to £754.5-million.
HMV UK & Ireland's like-for-like sales were up 1.6 per cent but Waterstones' was down 3.1 per cent.
Mr. Fox said the total UK book market was down 5 per cent since the first-half, largely due to a sharp slowdown in sales of celebrity hardback non-fiction titles.
Many British retailers are struggling with intense competition and a downturn in consumer spending, amid crumbling house prices, rising unemployment and fears the country has already entered recession.
Last month sweets-to-DVDs retailer Woolworths became Britain's most high profile victim of the consumer downturn when its 815-store retail business and wholesale distribution operation was placed in administration.
Mr. Fox said he expected "relatively little disruption" to HMV's Christmas trading from Woolworths' closing down sale, which starts on Thursday.
"I think their stores are already pretty much clear of any current stock," he said. "There is still quite a lot of stock sitting. At this stage there's no suggestion that that's going to find its way into the Woolworths' stores."
Its problems have also hit supplies to Zaavi, J Sainsbury Plc, Wal-Mart Stores' Asda, and WH Smith Plc.
"We do not have to worry about our supply chain, whereas virtually all our competitors are worrying about their supply chain," said Mr. Fox.
With Woolworths previously having about 10 per cent of the UK entertainment market, he sees its demise as a positive for HMV.
"A good chunk of that market will become available and our challenge is to capture as much of it on the high street as we possibly can," he said.
HMV maintained its interim dividend at 1.8 pence.
The group, which ended the first-half with net debt of £73.6-million, also announced a refinancing with a new three-year £220-million bank facility.
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