HMV expects to return to profitability next year in the wake of Game’s demise.

The retailer warned losses for the financial year just ended will be £16m - higher than previously expected and blamed on a weak new release schedule of CDs and DVDs in the final quarter.

However, the retailer remained positive over long-term prospects. The retailer reported: “Looking forward into 2012/13, reflecting the disruption to Game plc and the changed nature of our relationship with key music and film suppliers, the company is confident that it will return to profitability.”

HMV and Asda look best-placed to take Game’s market share Retail Week has reported. Game collapsed in March, closing 277 stores. The remaining 333-shop business was later acquired by OpCapita.

HMV recorded a like-for-like decline of 12.9% at its retail division in the 17 weeks to April 28 after a “very weak January”.

Total sales fell 19.2% over the same period while like-for-likes for the year to April 28 fell 11.7% at the retail arm.

HMV expects to make a pre-tax profit of £10m in the current financial year, £5m ahead of consensus forecasts.

Like-for-like sales at HMV Live improved 2.7% in the 17 weeks to April 28 but total sales fell 3.1%. Over the year, the division recorded 5.4% total sales growth despite a 0.2% like-for-like fall.

HMV reported that the strategic review of the Live business is “ongoing and further announcements will be made as and when appropriate”.

The retailer said it had continued to progress in developing technology and games sales and encouraging market share growth in all core categories in recent weeks.

Year-end net debt expected to be approximately £168m, representing an improvement on original forecasts.

HMV chief executive Simon Fox said: “The last year has been a difficult and challenging one for HMV and this will be reflected in our annual results.

“However we are confident that the actions we have taken will enable us to significantly improve our profit and cash generation in the year ahead.”

Conlumino managing director Neil Saunders said: “The outlook for the medium term, especially on the gaming front, looks more positive. HMV will inevitably grow its market share and will benefit as the release cycle of titles strengthens.

“However, the fact remains that gaming is not a saviour for HMV: it, like HMV’s core music and film markets, is a sector in the midst of an irreversible shift towards digital. At best, it will buy HMV some breathing space; it will not buy it a cure.

“The bottom line is that digital will do to physical music stores what motorisation did to the blacksmith’s forge. The future for HMV, in our opinion, is one of managed decline.”