Entertainment retailer HMV is targeting earnings growth over the medium term by increasing sales of new products in music, visual and games and raising its presence in live music and ticketing.
In a strategy update today the firm pledged a turnaround of its Waterstone's bookstore business, which traded poorly over Christmas, and said it would maintain the current level of dividend as it rebuilds cover to 2.0 times.
"Having rebuilt profitability over the last three years, we have a clear strategy to continue the transformation of the group," said Chief Executive Simon Fox.
The firm expects to maintain HMV UK's net margin over the medium term at 5-5.5 per cent and improve Waterstone's to 2-3 per cent in the short term and 3-4 per cent in the medium term.
Shares in HMV have fallen 39 per cent over the last year, underperforming the FTSE General Retailers index's rise of 57 per cent.
But the stock was up 7.2 per cent at 84.5 pence at 11.26am, valuing the business at about £363 million, as investors warmed to the update.
HMV, which faces the same competition from supermarkets, online retailers and digital downloading that caused rivals such as Woolworths, Zavvi and Borders UK to fall during the recession, has responded by cutting costs and widening its focus.
The firm, which runs 420 stores under its own name as well as 313 Waterstone's stores, has entered live music and ticketing markets, forming a joint venture with venue operator MAMA Group before buying the firm earlier this year.
It expects the total live music market to be around a third larger than recorded music by 2012 and is targeting EBIT of £15 million in this area in 2012/13.
HMV has also built a bigger presence in digital through a joint venture with 7digital, is trialling digital cinemas in partnership with Curzon, and is selling mobile phones through a deal with France Telecom's Orange.
Plans for HMV stores include raising the proportion of new categories, including technology and entertainment-inspired fashion, from 9 percent of sales currently to 21 per cent in 2012/13.
The firm plans to revitalise the Waterstone's brand, reposition its ranges and increase non-book sales from 6 per cent to 10 percent by 2013.
HMV is targeting a further £25 million of savings by 2012/13, including £10 million in 2010/11.
These savings are expected to offset underlying cost inflation to give broadly flat like-for-like costs over the next three years.
HMV added that by 2013 it expected to be debt free despite anticipated capital expenditure of 40 million pounds a year.
Reuters