19th Dec 11
HMV prepares to announce losses of £40m
by Adam Richards
Bum note: music specialist may not survive the New Year without rescue plan
Bum note: music specialist may not survive the New Year without rescue plan
HMV has summoned an urgent meeting with its suppliers today, while it prepares to inform the City that it has amassed first half losses of almost £40m and its crucial Christmas trading period has been unable to provide the much needed boost in sales.
The retailer has racked up an estimated £134m in net debt and even higher liabilities in terms of future rent commitments which stretch to a five-and-a-half year average, it was revealed in its annual report. The company, which has to pay its quarterly rent at the end of December, has identified 40 outlets for closure in 2011, but to date has only reduced its store numbers by 29 to 256.
HMV’s troubles have weighed on its share price, which closed last week at 3.87p, with the company being valued at £16m. A number of analysts believe that the group will be unable to survive in the new year without a rights issue. Other sources from the industry speculated that Universal could intervene with a rescue bid for the business. A white knight deal such as this would see the retailer reunited with EMI, its former sister company.
The 90-year-old group has felt the full effects of the economic crisis as well as supermarket and online competition. Like-for-like sales at last count had fallen 15 per cent as demand for DVDs and CDs fell away.
HMV almost collapsed earlier in the year, with a weak consumer environment and a collapse in trade leading to growing debts. To give itself some time Simon Fox, the chief executive, offloaded the Waterstone’s chain in a move which raised £53m. He is attempting to recast the retailer as an entertainment group, offering concert tickets and staging festivals as well as replacing some of the DVD and CD displays with technology products like iPods and tablet computers. In addition, it has entered the booming headphones market.
HMV generates 40 per cent of its sales and the majority of its profits during the busy festive period, but analysts do not anticipate that the retailer will make up the ground this time round. At the same time last year the company warned on profits before Christmas after two weeks of unusually heavy snowfall brought trading to a virtual standstill. This year’s trading patterns are thought to have been relatively normal, but subdued.
Retail expert Nick Bubb has predicted £38m in losses for the six months ending 31 October and thinks it will be unlikely to break even on the full year stage. He described the coming week as “make or break” for the retailer, saying that if sales are strong then it may almost break even for the year, but pointing out that if it goes badly the net debt position would be overwhelming with the probability of administration.
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