HMV warns on profits again as troubles mount

Owner of entertainment chain may have to sell Waterstone's within two weeks

HMV, the troubled retail group, laid bare its deepening crisis yesterday by issuing its third profit warning in three months, as analysts said they expected its dire trading performance to add to its debt burden.

While HMV, which owns the eponymous entertainment chain and the bookseller Waterstone's, was yesterday able to announce that its lenders had extended its annual covenant tests from 30 April to 2 July, the profit warning spooked investors and its shares tumbled 3p, or 20 per cent, to 12.3p.

It has also emerged that HMV could have just two weeks to agree a deal to sell Waterstone's to the Russian billionaire Alexander Mamut as it looks for ways to cut its bank debt and put itself on a firmer financial footing.

In addition to saying its trading conditions "remained difficult", HMV now expects pre-tax profits to be about £30m for the 12 months to 30 April. As recently as 1 March, the group warned profits would be "moderately below" market expectations of £45m.

While HMV appears to have suffered more than most from a downturn in consumer spending this year, it is not alone. Dixons Retail, the owner of Currys and PC World, also warned on profits last week.

Furthermore, Marks & Spencer is expected to add to the darkening clouds over the high street by reporting a 6.2 per cent fall in general merchandise sales today, although the City expects the high street bellwether to deliver profits of £709m in 2010-11. At the more grisly end of the market, four retailers, including Officers Club, Oddbins, Easy Living and Alworths, have collapsed in the past week.

HMV's latest grim trading update led analysts to raise their debt expectations. Back in March, HMV said that its net debt at the year end would not be less than £130m – which itself was nearly double previous City forecasts.

The group provided no further details on its debt position yesterday but said its banking facilities remain "fully available" and its lenders continue to be supportive. HMV also described its dialogue with banks as "constructive". But Sanjay Vidyarthi, an analyst with Execution Noble, said: "Clearly, given the sales trend, we expect the position to have worsened."

At the time of its first 2011 profit warning on 5 January, the company said it would offload 40 of its 285 HMV stores and 20 of its 300 Waterstone's shops to trim its underlying earnings-to-rent-bill covenant. But more severe measures are now being considered. HMV said on 25 March it was exploring its options for Waterstone's and HMV Canada, which could both be sold.

As part of its presentation to its lenders last month, HMV has vowed to improve its performance by focusing more heavily on selling technology products and beefing up its online operations. Its acquisition of Mama, the music venues operator, for £46m in January 2010 is also key to its strategy. With the banks applying pressure, HMV could have just two weeks to reach a deal over Waterstone's with Mr Mamut, who has a 6 per cent stake in the company. The Russian, who has teamed up to bid with the book store's founder Tim Waterstone, is understood to have entered exclusive talks with HMV. If a sale cannot be agreed, HMV is unlikely to find many private equity suitors for Waterstone's, which made an operating profit of just £2.8m for the year to 24 April 2010. The group may then have to consider an emergency rights issue.

Matt Walton, a retail analyst at Verdict, expects the "going to remain tough for HMV. Disposable income will continue to be squeezed throughout the year and the market is continuing to move away from physical products towards downloads".

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
news
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
PROMOTED VIDEO
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
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

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Java Developer - Banking - London - Up to £560/day

£500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

HR Business Analyst, Bristol, £350-400pd

£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on