A Christmas wreath hangs on number 10 Downing Street in London December 13, 2006. An uninspiring Christmas music chart, topped by Take That, and discounting by online rivals has hit sales at HMV Group, causing the music and book retailer to warn on profits.. Photo Credit: REUTERS/Dylan Martinez

By Pete Harrison

LONDON (Reuters) - An uninspiring Christmas music chart, topped by Take That, and discounting by online rivals has hit sales at HMV Group, causing the music and book retailer to warn on profits.

The value of the UK music market, including digital downloading, fell by 14 percent during October and November, HMV said in a statement on Wednesday.

"If you compare the line-up (of music releases) this Christmas with last, it isn't as exciting," Chief Executive Simon Fox said.

"It's not as impressive, with Take That at number one," he added. "We are likely to come in at the bottom end of City expectations."

Investment banks had been forecasting year pretax profit anywhere between 69 million pounds ($135 million) and 90 million. HMV said the bottom end of the range was 68-69 million pounds.

Fox said the group had still managed to build market share, but analysts said this had been done by cutting margins heavily to compete with the likes of Amazon and the group had not kept pace with technological advances.

Britain's Christmas shopping season made an encouraging start last month, with sales up 0.3 percent in November.

But HMV's high street rival Woolworths warned this month that entertainment sales had been weak, hitting its overall sales by 6.5 percent.

"We face very tough and rapidly changing markets," said HMV's Fox, who arrived in his post from Kesa Electricals at the end of September.

"The outcome of the peak trading period will be determined over the remaining two weeks, including the final weekend for shopping prior to Christmas," he added. "Our gut feeling is, we're not where we want to be."

Shares in HMV fell 2.8 percent to 149-1/2 pence by 0926 GMT, valuing the group at around 603 million pounds.

TOUGHEST JOB IN RETAIL

Analysts at Investec Securities said they reduced their forecasts for the group earlier this week, but not enough. Panmure cut its price target on the stock to 125 pence from 170 pence.

Analysts at Numis Securities said that although like-for-like sales at HMV UK and Ireland rose by 0.6 percent in the 12 weeks to Dec. 16, this had been done by cutting margins to compete with the big supermarkets and online retailers like Amazon.com and play.com.

"It is very hard to see how new CEO Simon Fox is going to turn this around. We suspect that he has just taken on the toughest job in UK retail," they said.

"Remember that we are only just starting to see the shift from physical CDs/DVDs to digital downloading, and that is only going to compound HMV's difficulties over the next couple of years," they added.

HMV said its UK Internet sales had accelerated by more than 200 percent compared to last year.

Like-for-like sales at HMV's Waterstone's bookshops fell 3.7 percent in the 12 weeks, while HMV Asia's sales fell 3.8 percent and HMV Canada's sales fell 3.4 percent.

For the group as a whole, like-for-like sales fell 1.3 percent.