Entertainment group HMV impressed the city with improved profits, despite difficulties at its Waterstone’s books chain.

Group pre-tax profits rose 11.5 per cent to £63m in the 52 weeks to April 25, when total sales jumped 4.4 per cent to £2bn.

Like-for-likes at music business HMV UK & Ireland increased 1.9 per cent and operating profit climbed from £41.4m to £57.3m.

Waterstone’s like-for-likes slid 3.8 per cent and operating profit slumped to £10m from £16.3m last year. However, the retailer said that Waterstone’s increased its market share in the period.

HMV International like-for-like sales were down 3.4 per cent.

Games now represent a quarter of the HMV chain’s domestic sales. Music accounts for 28 per cent, down from 30 per cent last year.

HMV Group chief executive Simon Fox said that although the games market is “clearly softening” its Re/Play second-hand games offer has had a “very positive reaction from customers”.

Fox expects that this financial year will be better for books. He said the line-up for fiction and Christmas celebrity titles “looks particularly strong”. He added that publishers are “looking forward to a stronger year” than last.

HMV chairman Robert Swannell said that following the retailer’s moves into live music through a joint venture with Mama, as well as tie-ups with Orange and Curzon Cinemas, “shareholders can expect further initiatives to follow”.

Investec analyst David Jeary was pleased with HMV’s performance. He said the retailer had “beaten market expectations and driven profit upgrades against the difficult economic backdrop through self-help and capacity withdrawal”.

Singer analyst Matthew McEachran said: “The business is well placed and is enhancing its offer in order to continue capturing market share in key categories, ahead of the peak trading period, which we believe could be the source of upgrades.”

Fox said he is “very pleased” with the progress made with Mama and highlighted the retailer’s “new and innovative ways of making HMV more attractive to artists”.

The store group has benefited from fallout in the entertainment sector following the collapses of Woolworths and Zavvi. HMV has targeted former Woolworths’ customers by improving its children’s DVD offers and investing in events such as Mother’s Day and Easter.

Fox said: “While there is much to do, our plans for the third year of our programme are on track.”