High street names feel the pinch as Christmas sales tumble

Entertainment giant shuts 60 stores after dire results

HMV confirmed the City's worst fears of a dire Christmas yesterday by issuing a profits warning, revealing concerns over a key banking covenant test in April and unveiling plans to close 60 stores.

Its eponymous chain said it had taken a £20m hit from the recent "severe weather". But it also blamed a "weak" entertainment market for a 14.1 per cent slump in underlying sales in the UK and Ireland over the 10 weeks to 1 January.

Given the group's heavy reliance on Christmas trading, the calamitous update sent shares in HMV, which also owns the bookseller Waterstone's, down by 20 per cent yesterday to an all-time low of 26p.

It also dragged down shares in Game, the video game retailer, and Dixons Retail, the owner of Currys and PC World. HMV said its full-year pre-tax profits would now come in at the lower end of City guidance of between £46m and £60m, compared to the £74.2m delivered last year. The warning on profits is the latest blow for the group, which last month said its losses had nearly doubled to £41.3m for the half year to 23 October.

HMV is struggling to combat fierce competition from the supermarkets and internet specialists, such as Amazon and Play.com, selling DVDs and CDs, as well as from consumers downloading – both legally, and often illegally – the same entertainment products over the internet.

The group has diversified its revenue stream into cinema, live concerts, festivals and clothing recently but the changes are yet to have a substantial impact on its bottom line.

Total sales at HMV, which also has stores in Canada, Hong Kong and Singapore, fell by 13.3 per cent over the 10 weeks. Simon Fox, HMV Group's chief executive, said: "The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business."

To slash its cost base, the company is to close 40 of its 285 HMV stores and 20 of its Waterstone's shops over the next year. A spokeswoman said the stores closed are located in major conurbations where there is already an HMV or Waterstone's shop.

"It is a rental cost reduction programme rather than a headcount reduction programme," she said.

Given its woes, HMV said it would be "tight" to meet a key covenant test under its bank facility in April relating to the ratio between its rent bill and earnings before interest, tax, depreciation and amortisation. But it expects the store closures to help it pass the test. The group also trumpeted an additional £10m of cost savings to be delivered in its next financial year. However, Andrew Wade at Numis Securities said: "With unabating structural pressures from new non-food grocery space and online competition, trading showing no sign of improvement and banking concerns now hanging over the business, we continue to [advise investors to] steer well clear."

John Stevenson, at Peel Hunt, said: "While short-term snow disruption is not a structural failing, we feel the market is changing at a faster rate than HMV." Total sales at the group fell by 9.1 per cent over the 10 weeks.

However, Waterstone's fared better than HMV. Sales fell by just 2.1 per cent over the 10 weeks and by just 0.2 per cent over the final five. The book chain was helped by Jamie Oliver's latest cookery tome, which it said was the "fastest-selling non-fiction book of all-time".

Mr Fox said: "Progress at Waterstone's this year has been pleasing, and we remain on track to meet our business and financial objectives for the end of the first year of our turnaround programme."

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

£11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

SThree: Recruitment Consultant

competitive + incentives + uncapped comms: SThree: Did you know? 98% of our di...

SThree: Trainee Recruitment Consultant

competitive: SThree: Did you know? 98% of our directors started with SThree as...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sa...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen