HMV, the entertainment retailer, today showed there is still life on the high street in the face of internet competition after beating forecasts with a 9.4 per cent rise in Christmas sales.

The company, which is in the middle of a turnaround plan aimed at reducing its historic dependence on CDs in favour of popular computer games, said that annual profits would be close to £53 million - towards the top of analyst forecasts.

The City had been expecting like-for-like sales growth of about 9 per cent, meaning that HMV's 9.4 per cent improvement in the five weeks ended January 5 are slightly ahead of consensus. Shares in the retailer rose 13.8 per cent to 115p in early trading.

Simon Fox, HMV's chief executive and the former boss of Comet who joined the music retailer last September, said today's figures demonstrated he had "stablised the business".

Mr Fox said: "This is the best Christmas we've ever had [since floating in 2002]."

He added that he saw no sign of a consumer slowdown, although he said that with an average spend of £10 per customer "perhaps our low ticket value protects us".

Significantly, HMV was up in all product categories in the UK, including music.

Mr Fox said while CD volumes were down 12 per cent across the market, HMV was up 2 per cent. For DVDs, HMV was up 11 per cent by value, against a market roughly flat in value terms, while games shipments were up by as much as 45 per cent.

"I think the gloom about music has been overdone," Mr Fox said, in the face of predictions of the demise of the CD. "Music may only be 28 per cent of our business, but it's our DNA, and we have a passion for the business."

Only in books did the group underperform. The books market was ahead 5 per cent in value terms, but only 4 per cent at the group which also owns Waterstone's. Like-for-like sales at Waterstone's were up 4 per cent, and the shop's revamped internet arm grew revenues by 100 per cent, from an unspecified base.

HMV UK and Ireland shops in isolation registered like-for-like growth of 14.1 per cent, although the mainly Canadian international arm showed same store sales slip 0.6 per cent.

Mr Fox said: "Before Christmas we saw our major specialist competitor in Canada go into liquidation, a company called Music World. They were selling down stock before Christmas, but now they are fully closed, and our business has picked up following that."

Top sellers were albums from Leona Lewis and Amy Winehouse. In films; The Simpsons: The Move, Transformers and The Bourne Ultimatum, and in books Nigella Lawson, Russell Brand and Jeremy Clarkson.

Popular games were Fifa 08, the football game, first person shooter Call of Duty, and medieval combat game, Assassin's Creed.

A year ago, some analysts worried about whether HMV would be able to survive against a backdrop of failing music retailers and fierce competition from Amazon.com against its Waterstone's books business.

HMV added that full year profit before tax would be "towards the upper end of market expectations" of between £43 million and £53 million.

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