HMV says it hopes sales will improve by Christmas

HMV said that sales had been hit by competition from supermarkets and by more people buying products online.

The firm, which bought the Ottakar's book chain this year, saw like-for-like sales fall 5.7% in the year to April while current sales are down 10.1%.

It has also announced plans to merge its Waterstone's and Ottakar's chains.

Price cuts

The move - which will expand the Waterstone's chain to more than 330 outlets - will result in a number of redundancies among Ottakar's staff, although the details have yet to be finalised.

The firm is also cutting prices on CDs and DVDs, to bring them into line with those sold in supermarket chains such as Tesco and Asda.

Prices will come down by more than 10%, with some newly released albums being sold for �7.95.

In the year to 29 April, total sales across the HMV group fell by �36.6m, or 2%, to �1.8bn.

HMV continues to be attacked from all angles Richard Hunter, Hargreaves Lansdown See HMV's share price

Like-for-like sales, which exclude stores open for less than a year and are regarded as a crucial indicator of a retailer's performance, fell 5.7%.

HMV warned that trading had deteriorated further in the early summer period, with like-for-like sales at its core HMV shops down 16% in the nine weeks to the end of June.

"As we expected, trading conditions in the first few weeks of the new financial year have remained difficult," said chief executive Alan Giles, who is set to retire later this year.

"However, we are making excellent progress with a two-year programme of initiatives, which we anticipate will begin to improve performance during the crucial Christmas period," he added.

One analyst said HMV found itself in a tricky position.

"HMV continues to be attacked from all angles and it remains unclear whether it is fully sure which way to turn," said Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers.

Ottakar's disappearing

The Ottakar's name will disappear from the High Street, with HMV planning to rebrand 141 Ottakar's stores as Waterstone's outlets by the end of 2006.

Ottakar's administrative offices in London and Salisbury are to close, with their functions being merged into Waterstone's.

The Ottakar's name is set to disappear from the High Street

HMV has begun consultations with more than 100 staff likely to be affected by the move.

But only a handful of the combined company's 330 book stores are likely to close as a result of the merger, HMV stressed.

HMV's struggles, allied to its large and attractive property portfolio, have made the company a takeover target in recent months.

The company rejected an offer of 210 pence per share from private equity firm Permira in February, while a consortium headed by Waterstone's founder Tim Waterstone abandoned a proposed bid for the book chain in May.