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HMV faces crucial 12 days

Shares in struggling entertainment retailer HMV plunged 40% yesterday as it warned the next "12 critical days" of Christmas sales could determine its future.

gloom: HMV has struggled in declining music and DVD markets.
gloom: HMV has struggled in declining music and DVD markets.

HMV, which has 22 stores in Scotland, said the sales boost was vital to help it avoid a likely breach of its banking agreements at the end of January,

The 91-year-old company said weak market conditions had created "material uncertainties", with a worse than expected start to the Christmas trading period normally expected to deliver 60% of annual sales.

Unless sales perked up the group would probably breach its covenants with its banks, led by RBS and Lloyds, on its financial performance, HMV said.

It warned it was unlikely to meet analyst expectations for its full-year results, without giving further guidance.

The share price, which had risen steeply on Wednesday on hopes of a better outlook, crashed from 4.11p to 2.49p.

HMV, famous for its Nipper the dog trademark, has struggled in declining music, DVD and games markets and has been shifting its focus towards promotions and technology products like tablet PCs and headphones.

It has recently offloaded its live entertainment business, its best performer, selling off venues including the Picture House in Edinburgh.

Last January, HMV shares trebled to 7.1p after its eight banks relaxed covenants and gave it more headroom for recovery.

Yesterday the retailer said it was in "constructive discussions" with the banks, including keeping them informed of current trading. HMV declined to say what penalties it would face if it did breach its agreements.

Trevor Moore, chief executive, said one factor was that "Christmas gets later every year, people are also in search of the promotional offer and being very careful about where they spend their money".

He added: "There are still 12 critically important trading days until Christmas and being on the high street, if things do come late, it is absolutely to our advantage because that's where the footfall will be.

"That Friday, Saturday, Sunday and Christmas Eve will be very important for the high street and very important for HMV."

Analysts at brokerage Panmure Gordon said in a note: "It is difficult to ascribe an equity value [to HMV], given the material uncertainties.

"The group has a lot of support from its various stakeholders, but its markets are extremely unhelpful."

HMV's statement came as the group reported a £24.1m operating loss for the 26 weeks to October 27, an improvement on the £33.2m loss posted a year ago.

The group, which has benefited from better terms with its key suppliers and from rival computer games retailer Game hitting trouble and halving its number of stores, said like-for-like retail sales in music and DVDs still fell by 16% despite growing its market share in all categories.

Net debt at the half-year rose to £176.1m from £163.7m, despite the disposals which included the £53m sale of Waterstones last year. HMV said it had begun a cost base review but had no plans to close any of its 247 stores at present.

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