SHARES in HMV Group plunged by more than a fifth at one stage yesterday as it issued a profit warning while admitting that it was struggling to meet the terms of a loan covenant.
The music and DVD retailer – which also owns Waterstone’s bookshops and a string of live venues – plans to close 60 UK stores this year in an attempt to rein in costs.
Christmas like-for-like sales plummeted by 10.2 per cent on the same period last year with the company blaming the snow for denying it a festive boost. It said business was hit by the severe weather and “challenging trading conditions”.
The figures, which covered the five weeks to 1 January, were dragged down by a 13.6 per cent sales slump at its HMV music stores in the UK and the Irish Republic.
It said profits for the year to April would be at the bottom end of the £46m-60m range expected by markets.
HMV said there was an underlying drop in demand for CDs and DVDs with downloads eating up a growing slice of the market.
The demise of rivals Woolworths and Zavvi have left HMV as the last chain of its kind standing.
Meanwhile, the company’s struggle with debt was laid bare in its statement. HMV said: “The board now expects that compliance with the April covenant test under the group’s bank facility will be tight and is taking further mitigating actions during the next four months to address this.”
The company said it would save £10m this year as well as closing the 60 stores. Waterstone’s performed relatively well compared with the rest of the business, with steady like-for-like sales.
HMV’s shares closed 20 per cent lower at 26p.
ANALYST VIEWS: CAN HMV BOUNCE BACK AFTER THIS BLOW?
Interviews by John Dunne
KATE CALVERT | SEYMOUR PIERCE
A break up of the business becomes more likely and further store disposals are expected. While the valuation appears undemanding on conventional measures, we believe there are safer investment opportunities elsewhere.
RICHARD CURR | PRIME MARKETS
We had little faith in prospects for the retailer over the Christmas period; with increased losses, falling like-for-like sales and soaring debt levels, even a bumper set of sales would have done little to stem the tide.
NICK BUBB | ARDEN PARTNERS
We are downgrading our numbers and recommendation again. The market largely expected a profit warning, but the news is still depressing because HMV has warned that it is now close to breaching bank covenants