WH Smith in choppy waters as sales fall: CD and DVD sales slump results in a profit warning.(Retail)

Analysts voiced concern last week at WH Smith's chances of climbing out of a trough last week, after the High Street chain issued a profit warning, attributing its difficulties to plummeting CD and DVD sales.

Chief executive Richard Handover issued a statement on Thursday, telling the City that he expects like-for-like sales to be flat for the second half of the year, highlighting marketing its difficulties to issues such as the long, hot summer and the Iraq war.

A spokeswoman for Smiths concedes that competition from supermarkets in the CD and DVD business has hit the group hard and also blames the general depression in the music industry "possibly through downloading or a weak release schedule".

She says Smiths is experimenting with more flexible ways of selling music in stores; the chain's newly-opened Guildford store utilises movable shelving to allow management to increase or decrease the entertainment range.

"Music is important to us and customers," she says. "More flexibility is one possible solution."

Retailers say that Smiths' share has been eroded by the supermarket chains. One retailer says, "Smiths have found themselves in the middle. They have got to the point where they either retaliate or they lose share." Recent Smiths deals to rival those of the supermarkets include an offer allowing customers to buy two chart CDs and get 5 [pounds sterling] off.

Retail analysts suggest that Smiths problems in the CD markets may be more deep-rooted. In Thursday's statement, Smiths stated, "gross margin in the second half of the year will fall by approximately 60 basis points (0.6%), primarily as a result of ...