The Irish unit of Sir Richard Branson's Virgin Megastore group, the third largest music retailer by sales, has returned to the black with annual pretax profits of €1.9 million after three years of losses.

The return to profitability in the year to March 2005 came amid a spending boom, yet at a difficult time for traditional music retailers, who face growing competition from online music sellers.

Turnover at Virgin Retail (Ireland) fell slightly to €23.46 million from €23.48 million a year earlier, but reductions in the cost of sales and operating expenses helped reverse operating losses of €2.83 million in the previous period. An operating profit of €1.7 million brought pretax profits to €1.9 million after €201,000 in interest receivable and other similar charges.

Such profits helped to reduce the group's retained losses in Ireland to €7.32 million from €9.15 million a year earlier. "The directors are unable to recommend payment of a dividend," said a note with the accounts.

A spokesman in London for Virgin said that unaudited like-for-like sales in the year to March 2006 rose to €24.2 million. Total unaudited sales, including the contribution from new stores and a closed store, in the most recent period were in the region of €34 million, but the spokesman declined to say what the profit was.

The increase in sales in the most recent year brought Virgin within touching distance of its Irish rival Golden Discs, whose turnover fell 3 per cent to €37.5 million in the year to March 2005, while pretax profits fell 17 per cent to €706,881. HMV remains the dominant music retailer, with sales of €69.5 million in the 53 weeks to April 2005 and profits of €9.34 million.

Virgin opened new stores in Limerick, Dundalk and Dundrum in the past year and it closed a store in Henry Store, Dublin. That move completed the chain's withdrawal from central Dublin, three years after the closure of the landmark Virgin Megastore on Aston Quay that opened in 1986.

The company has stores in the west Dublin shopping centres at Liffey Valley, Tallaght and Blanchardstown, and in Cork. An eighth store is planned at the Whitewater Centre in Newbridge, which opens today.

Losses of €2.78 million in the 60 weeks to March 2004 followed losses of €797,000 in the previous period and a loss of €1.52 million in the period before that.