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HMV Group Plc said underlying sales continued to grow during the summer, albeit at a slower rate, with robust demand for games such as Grand Theft Auto IV, Wii Fit and Mario Kart offsetting falling sales of CDs.

One year into a three-year plan to revitalize the music, DVD, games and books retailer's businesses and counteract rapidly declining non-digital sales, Chief Executive Simon Fox said on Friday his strategic initiatives were on track despite the tough consumer environment in Britain.

In a statement published ahead of its annual shareholder meeting, HMV said its like-for-like sales for the 18 weeks to Aug. 30 rose 1.3 per cent. This was broadly in line with analysts' expectations but a sharp slowdown from growth of 10.1 per cent in the previous quarter.

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HMV's performance was driven by its UK and Ireland division, which continued to defy the gloom seen in most parts of the high street, reporting like-for-like sales growth of 4.3 per cent.

Sales growth in games approaching 50 per cent and growth of 40 per cent in the new technology product category offset a 9 per cent decline in music sales and growth of just 2 per cent in DVDs.

HMV International, which comprises stores in Canada, Hong Kong, and Singapore, saw underlying sales increase 2.9 per cent.

However, the group was held back by a 4.3 per cent fall in like-for-like sales at the Waterstone's book chain, reflecting a weaker book market and tough comparative numbers as the same period last year was boosted by the final instalment of the Harry Potter series.

HMV said gross margins, a measure of profitability, were in line with guidance.

With a strong autumn/winter release schedule this year in all product categories, Mr. Fox is optimistic about prospects for the crucial Christmas period, forecasting "low single digit" like-for-like growth for the group.

"Within that I expect games will probably be not as much as 50 per cent. (But) it's still a buoyant time for gaming," he told reporters.

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He said he is happy with analysts' consensus forecasts for year to end-April 2009 underlying pretax profit of £68-million, up from £56.6-million last time.

Shares in HMV fell nearly 5 per cent but by 1012 GMT were down 2-3/4 pence, or 2.1 per cent, at 129 pence, valuing the business at about £520-million ($925.4-million).

The stock has risen 11 per cent over the past year, outperforming the FTSE Allshare Index by 45 per cent.

Freddie George, analyst at Seymour Pierce, said he is holding his current year profit forecasts for HMV but over the medium term remains concerned that music downloading will severely impact sales of CDs and DVDs.

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