High street names feel the pinch as Christmas sales tumble
Entertainment giant shuts 60 stores after dire results
Thursday 06 January 2011
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."
Actress sees off speculation about her appearance in an amazing way
Powerful images of strays taken moments before being put down
Enid Blyton’s Magic Faraway Tree really is being made into a film
The Washington Post editor helped Bob Woodward and Carl Bernstein bring down President Nixon
- 1 Salisbury ranked seventh-best city in the world to visit in Lonely Planet’s Best in Travel 2015
- 2 Disney announces new female-led film Moana
- 3 Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
- 4 Kentucky gang rape: 15-year-old boy left in critical condition after sexual attack by group at party
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Chicago voter tells Obama 'don't touch my girlfriend' – Obama stays super smooth
Oscar Pistorius: The brutal prison life that awaits disgraced athlete
Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
Raphael Ravenscroft dead: 'Baker Street' musician who played the most famous saxophone solo for just £27, dies aged 60
Darren Vann: Indiana man arrested for murdering teenage prostitute confesses to six other murders - and police fear more
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Jose Manuel Barroso warns David Cameron against making 'historic mistake' over immigration reforms
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...