Music retailer Golden Discs reported an 8 per cent rise in sales to €37.4 million in the year to March last but said a sharp increase in overheads pushed profits down 10 per cent to €700,000.

Although demand for video games and DVDs was buoyant, rent inflation - of up to 100 per cent in some instances - seriously eroded profitability, said Mr Tony Killoran, chief executive.

Nevertheless, the chain has ambitious expansion plans for 2004, with new outlets to open in Dublin, Cork, Naas and Maynooth in Co Kildare, and Drogheda, Co Louth. Golden Discs operates 27 branches, employing 200 people.

A strong Christmas performance, particularly in regional stores, is expected to boost profitability for the current financial year, said Mr Killoran.

He said: "Our results reflect the growing costs of doing business in Ireland. During the trading year in question we experienced rent increases of up to 100 per cent in some cases. Growth in revenue from the games and DVD market helped boost our turnover and we intend to continue to develop these formats with a strong marketing and value emphasis."

He added: "We hope to continue to expand our current branch network by gaining representation in major shopping centre developments in both Dublin and Cork and indeed in developments planned for Naas, Drogheda and Maynooth. We are also monitoring developments in other locations very closely."

Golden Discs increased sales at a difficult time for the music industry. Record sales slumped 20 per cent by value in the Republic in 2003, according to the Irish Recording Music Association (IRMA).

Music downloading and the growing popularity of online retailers are the chief reasons for the decline. Last week, the Web-based music store Cdwow was forced to increase the price of CDs by €3 in a legal settlement with IRMA, which accused it of illicitly sourcing stock from the Far East "grey market".