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UK: HMV in talks with banks amid disappointing pre-Christmas sales

09:55 13 December 2012

HMV

HMV's new boss today warned the entertainment group is in talks with banks over its future

HMV’s new boss today warned that the entertainment group is in talks with banks over its future following worse-than-expected trading in the run-up to Christmas.

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Chief executive Trevor Moore, who joined the group from camera chain Jessops, warned current market conditions suggest the group will not meet expectations for the year to April.

As a result, the terms of its bank loans are not likely to be met in January and April, placing the future of the 238-strong chain under threat.

HMV said like-for-like sales fell 10.2% in the 26 weeks to October 27 as its pre-tax loss narrowed to £36.1million, compared to £50.1million the previous year.

The dismal results come despite reports that HMV has received £40million in financial support from its suppliers in a bid to keep it going over the vital festive period.

HMV shares tumbled 39% in early trading after the results were published, giving the retailer a market value of just £10.1million.

Suppliers including Universal Music came to HMV’s rescue last January with a deal which helped the retailer shed some of its huge debt pile.

Both music publishers and film studios are keen to see the struggling business survive as internet retailers like Amazon chip away at their profit margins.

It is understood that HMV has secured improved access to music and film suppliers’ back catalogues and is buying stock on consignment, meaning it pays only for products if it sells them.

Its struggle has seen it sell off several parts of its business, including the Waterstones book retailer, to reduce its debt pile, while closing loss-making stores.

HMV recently offloaded its Hammersmith Apollo venue for £32 million, which enabled it to thrash out a new deal with lenders.

It said today that sales in the first half of the year were hit by the light release schedule, as suppliers held back on significant product launches due to the Olympics.

The group said it managed to boost its share of the declining market by ramping up promotional offers such as “2 for £15” on CDs or “5 for £30” on Blu-Ray discs.

At the end of the period, the business had a 38% share of the physical music market and a 27% share of the physical visual - DVD and Blu-Ray - market.

Mr Moore said closing more stores or placing the business into administration is not “part of our plan”.

He said: “It’s been a tough first half but we’ve reduced losses and in a difficult market we’ve continued to grow share.”

Back in May, when former boss Simon Fox was still in charge, the group said it was looking for pre-tax profits of at least £10 million for the 2012/13 financial year.

Freddie George, analyst at Seymour Pierce, said he was “unconvinced” that measures taken by the group were enough to “offset the structural pressures on its core business of music, vision and gaming”.

Maintaining his “sell” recommendation on the group’s shares, Mr George added: “We continue to see HMV as a value trap with potentially insurmountable structural issues.”

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