HMV's nightmare before Christmas

The picture looks even bleaker than expected at the long-suffering entertainment chain, with directors admitting there is doubt over its future

In the latest profit warning from the beleaguered entertainment chain HMV, 23 words tell the sad story about how precarious its future has become. Following the group admitting its early Christmas sales had tumbled below expectations and that it would probably breach its banking covenants early next year: the 238-store chain said: "The directors recognise that this represents a material uncertainty which may cast doubt upon the group's ability to continue as a going concern."

That HMV is in this position will surprise few. The now-almost-hackneyed lines about it being battered by the online specialist Amazon, losing sales to the big supermarkets on the web and in-store, and consumers increasingly digitally downloading their music are as true today, if not more so, as they were five years ago.

Joseph Robinson, a senior consultant at Conlumino, the retail consultancy, said: "Fundamentally, HMV's key markets are in terminal decline and, with its major competitors having already exited the high street, there are very few opportunities to mitigate this through market-share gains."

But even by HMV's previous standards the amount of red ink on its half-year results was alarming, most notably the fact its debts have actually risen despite a huge sell-off of its assets.

While the group received £25.7m from the sale of its Hammersmith Apollo music venue in London, HMV's net debt rose by 8 per cent to £176.1m over the six months to 27 October. After the period end, HMV sold off the rest of its live music division Mama Group, and its 50 per cent stake in venue operator Mean Fiddler, for a paltry £7.3m. Last year, it had tried to slash its debt mountain by selling its Waterstones book business to the Russian oligarch Alexander Mamut for £53m.

However, Trevor Moore, the new chief executive of HMV, insisted the group has a "strong future", adding its UK stores receive 170 million visits a year and its website 50 million. Before Mr Moore took the helm in September, the group had started to try to offset the continuing decline in sales of DVDs and CDs by ramping up the amount of technology products, including docking stations, headphones and tablets, it sells.

But he said today: "Things have started more slowly than we would have hoped but there are still shopping days until Christmas. As we all know Christmas is getting later and later every year. We have bought well and have some excellent promotions." Mr Moore tipped Fifa 2013 and Skylander among games, Mrs Brown's Boys and Batman: The Dark Knight Rises among visual, and One Direction and Emeli Sandé in music as the big sellers but analysts believe there are few real blockbusters.

But the figures speak for themselves. HMV's cashflow was negative by £9.4m at the end of October, following a surplus of £7m last year. And its UK like-for-like sales tumbled by 10.2 per cent over the half year. Indeed, HMV is likely to miss its profit target of £10m for its current financial year to April, which was only made in August, by some distance.

More pressingly, with its debt mountain of nearly £180m, HMV's directors are likely to be forced into spending more time with its banks after their latest rendition of Auld Lang Syne.

"We will start discussions with our syndicate of eight banks early in January when we know exactly how Christmas and the New Year sales have gone," said Mr Moore.

In addition to the support of its banks, HMV is also now effectively reliant on its suppliers' support. Suppliers are thought to be providing funding of about £40m this year to HMV, largely in the form of discounts on products, and they have provisionally planned a similar amount for 2013-14.

The support of suppliers is understood to be linked to HMV's announcement in May to amend its existing £220m bank facility and extend it to September 2014. While the group remains in "constructive discussions" with its banks, it warned it would almost certainly breach two covenants tests in January and April. One relates to the ratio between underlying profits and its net debt.

Of course, Mr Moore, the former chief executive of ailing camera shops chain Jessops, may be able to deliver an improbable turnaround from the shop floor and its website.

But multiple sources believe HMV's best hope of survival may be the continuing support of its banks and suppliers, allied to a possible restructuring next year, although HMV has ruled out any imminent store closures.

After its shares tumbled by 1.6p, or 40 per cent, to just 2.5p today, the City appears to have grave doubts about any possible recovery.

Mr Robinson said: "The unfortunate fact remains that HMV's proposition has become increasingly irrelevant in the modern retail landscape."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
Courtney Love has admitted using heroin while pregnant with Frances Bean Cobain, her daughter with Kurt Cobain
people
Sport
Murray celebrates reaching the final
tennis
Life and Style
life
Arts and Entertainment
'The Archers' has an audience of about five million
radioA growing number of listeners are voicing their discontent; so loudly that even the BBC's director-general seems worried
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee
World War Z author Max Brooks honours WW1's Harlem Hellfighters in new graphic novel

Max Brooks honours Harlem Hellfighters

The author talks about race, legacy and his Will Smith film option to Tim Walker
Why the league system no longer measures up

League system no longer measures up

Jon Coles, former head of standards at the Department of Education, used to be in charge of school performance rankings. He explains how he would reform the system
Valentine's Day cards: 5 best online card shops

Don't leave it to the petrol station: The best online card shops for Valentine's Day

Can't find a card you like on the high street? Try one of these sites for individual, personalised options, whatever your taste
Diego Costa: Devil in blue who upsets defences is a reminder of what Liverpool have lost

Devil in blue Costa is a reminder of what Liverpool have lost

The Reds are desperately missing Luis Suarez, says Ian Herbert
Ashley Giles: 'I'll watch England – but not as a fan'

Ashley Giles: 'I'll watch England – but not as a fan'

Former one-day coach says he will ‘observe’ their World Cup games – but ‘won’t be jumping up and down’
Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness