HMV and Kesa issue warnings as pair feel the high street pain

RETAILERS HMV and Comet owner Kesa dealt further blows to the high street yesterday as they warned about supply problems and lower profits respectively.

Music and DVD retailer HMV, which also owns the Waterstone's book chain, admitted key suppliers have been denied trade credit insurance, sending its shares tumbling. But it insisted it has had no problems getting stock.

Credit insurance is vital to suppliers as it protects them if their customers go bust. Withdrawal of credit insurance was behind the demise of retailers Woolworth's and Zavvi in late 2008.

Shares in the group closed the day down 2.9 per cent at 25.5p, having earlier dropped as low as 13 per cent to 22.75p. The stock was worth 140p two years ago.

HMV recently announced plans to close 60 of its HMV and Waterstone's stores after underlying sales slumped 13.6 per cent over Christmas at its 600 UK and Irish stores. It also warned over profits at the time.

HMV blamed "challenging markets" and heavy snowfall, and warned of "headwinds as we enter 2011". The retailer has a crucial debt covenant test in April, and admits meeting it will be tight.

Yesterday it said in a statement: "Following the peak trading period, credit insurers are reviewing the level of cover they provide on the group.

"Whilst this has resulted in the reduction in the availability of credit insurance to certain of the company's suppliers, our business remains a core channel to market for them.

"We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock."

Analyst John Stevenson, at brokerage Peel Hunt, said: "There will be increased pressure on HMV to move quickly to secure its financial position, whether in terms of financing and its covenant requirements, or other means in order to underpin supplier and investor confidence."

Kesa became the latest retailer to warn over profits after reporting a 7.3 per cent comparative sales slide at Comet between November 1 and January 18.

It estimated snow knocked about two per cent from sales. Added to the impact of tough competition, it expects adjusted pre-tax profits for the year to be at the lower end of expectations – around 98m euros (83m).

Shares in the company shed 9.8 per cent to close at 136p. The group expects to report a small full-year retail loss for Comet, which sells electrical goods ranging from refrigerators to TVs.

Kesa said Comet was forced into heavy discounting amid an increasingly competitive market against rivals such as Currys owner Dixons Retail and Carphone Warehouse's Best Buy joint venture.

This drove Comet's profit margins down over the Christmas period while the chain was also hampered by a slowdown in internet sales after the introduction of a new software platform in November. Online sales rose three per cent, against eight per cent in the half-year.

The poor performance in the UK was mirrored in Kesa's Italian, Turkish and Spanish operations, where it trades as Darty. These markets saw like-for-like sales drop 8.8 per cent, leaving group sales down four per cent despite more resilient trading at Darty France.

Retail analysts at Investec Securities described the Comet sales result as "horrible". "This is hugely disappointing and we believe highlights the risk of the strategy of depending on smaller stores with a more focused product range to entice customers," added analysts at Shore Capital.

Industry experts predict a tough year for retailers in 2011, as higher taxes, inflation and dwindling consumer spending create a toxic cocktail.

"They are going to have their toughest cycle for a generation coming up," warned Dan Butters at Deloitte recently.

"We're not forecasting any material growth for the next two to three years, and possibly a contraction.

"Generally speaking it will be a period of attrition."

Retail expert Randal Casson at PricewaterhouseCoopers in Leeds predicts consumers will go on a "post-Christmas retail diet".

ASOS LIFTED BY ITS INTERNATIONAL REACH

Online fashion retailer ASOS said sales soared 59 per cent in the Christmas quarter thanks to a record performance from its international arm.

The group reported a 156 per cent surge in overseas sales to 43.7m for the final three months of 2010, which helped offset an increasing trend for slower growth in the UK.

Sales in the UK improved on the previous three months, at 23 per cent up from 20 per cent, but were held back by delivery challenges caused by the pre-Christmas snow.

ASOS had to bring forward UK delivery deadlines by three days due to the weather, which analysts at Numis Securities estimate could have cost the firm around 5m in lost sales.

Chief executive Nick Robertson said the impact would be "non-material" on overall group results.

Sales grew 267 per cent in America after it launched a dedicated website at the end of September with sites following soon after in France and Germany, helping European growth rocket to 102 per cent.

Mr Robertson said the group would open another "handful" of sites this year worldwide, but did not reveal in which countries.

Overseas sales now account for around 40 per cent of turnover, up from 28 per cent in its last financial year.

Asos last year announced a 40m investment in a warehouse in Barnsley.

Its shares lifted 8.6 per cent to close at 1,683p.