UPDATE 1-HMV sees more tough times ahead as profit plunges

Thu Jun 30, 2011 2:24am EDT

* Year underlying profit down 61 pct to 28.9 mln stg

* Loss after tax and impairment charges 121.7 mln stg

* Sees markets and broader environment staying tough

(Adds detail, background)

LONDON, June 30 (Reuters) - Struggling British music and DVD retailer HMV , which has been selling off assets in a bid to secure its future, said trading conditions were set to remain tough as it posted a 61 percent drop in annual profit.

The 90-year-old group, which has issued four profit warnings this year, said on Thursday it made a profit before tax and one-off items of 28.9 million pounds ($46.2 million) in the 53 weeks to April 30, in line with its latest guidance.

After tax and non-cash impairments charges from the assets it has sold, it plunged to a loss of 121.7 million pounds.

HMV has been struggling for years with the rise of digital downloading and cut-price competition from supermarkets.

Its problems have come to a head this year with a downturn in consumer spending which has driven a string of retailers, including Focus DIY and Jane Norman, out of business, and led others such as chocolatier Thorntons to close stores.

HMV, which is trying to switch its emphasis to faster-growing markets such as new technology products, live music and event ticketing, secured its immediate future this month with a 220-million-pound refinancing deal with its banks.

It has also sold its Waterstone's books chain and its Canadian arm to cut debts.

"We continue to operate in a challenging macro environment, and the core retail markets in which HMV trades also remain difficult," it said.

"However, we have taken decisive action to restructure the group, and have a clear strategy for transforming HMV into a broad-based entertainment business."

HMV shares, down 78 percent over the past year, closed at 10 pence on Wednesday, valuing the firm at 48.5 million pounds. ($1 = 0.626 British Pounds) (Reporting by Mark Potter)