ENTERTAINMENT group HMV laid bare its woes on the high street when it warned it could go out of business as the squeeze in consumer spending shrinks sales of CDs and DVDs.
The retailer, which has already closed 60 stores and sold the Waterstone’s book chain to cut debt, yesterday posted deeper half-year losses and warned of “material uncertainty” over its going concern status.
Shares in the debt-laden retailer, which has 256 UK and Irish stores and employs 4,500 staff, plunged 25 per cent to 2.9p. That values the business at just £12.3m.
Analysts said HMV may have to sell its Live concert and festival division to cut debt.
“We don’t think that the worst is by any means behind HMV,” said analyst Peter Smedley at Charles Stanley stockbrokers.
The high street has already witnessed a bloodbath this year, with Focus DIY, Jane Norman, Habitat and Oddbins among the highest profile casualties. Blacks Leisure, which also owns the Millets brand, recently told investors it is unlikely to realise any value for shareholders after putting itself up for sale.
Traditional retailers face tough competition from online stores, plus supermarkets selling a wider range of merchandise. Meanwhile, consumers are battling high inflation, stagnant wages, surging unemployment and Government austerity measures, resulting in the biggest squeeze in household incomes for decades.
A survey by Markit yesterday revealed this pressure intensified in December, with householders reporting the fastest drop in incomes for more than two-and-a-half years.
IHS Global economist Howard Archer said the Markit survey highlights the “major problems facing retailers as the Christmas shopping period comes to its climax”.
He added while inflation is likely to ease sharply in the new year, rising unemployment and tight fiscal policy mean “the overall environment still looks tough for consumers and retailers in 2012”.
HMV’s results for the 26 weeks to the end of October showed pre-tax losses of £36.4m before exceptional items, compared with losses of £27.4m a year earlier.
Total losses after tax and exceptionals hit £50.1m, versus £30.9m losses in 2010.
Like-for-like sales in its stores were down 11.6 per cent, and total group sales slumped 17.6 per cent to £364.9m. Debt increased to £163.7m from £151.6m a year earlier. In the seven weeks to December 17, the like-for-like sales slide at its store network accelerated to 13.2 per cent, although HMV said this excludes a crucial day of Saturday trading.
The 90-year-old group insisted its restructuring and refinancing over the summer created a platform for progress, and it is “well prepared” for the key Christmas trading period. But HMV added while it has adequate resources for the immediate future, “the economic environment and trading circumstances create material uncertainties which may cast significant doubt on the group’s ability to continue as a going concern in the future”.
The group has put its HMV Live business up for sale. The division had a “successful” summer festival season, more than doubling operating profits to £3.4m.
“What we’re looking at with (a sale of) HMV Live is to de-leverage in order not to be paying higher interest rates (from January 2013) and in order to make sure that by the time we come to re-finance the business in September 2013 our overall levels of debt are lower,” said chief executive Simon Fox.
HMV paid more than £60m for the division in 2009, and Mr Fox said it could be worth more than this. The retailer sold Waterstone’s for £53m during the summer, and secured a £220m two-year banking facility. But Peel Hunt analyst John Stevenson said: “Any consideration may make only a limited dent in the group’s financing from a distressed sale.
“The current bank deal was built around aims to pay down early via an equity fundraise, and this now looks unlikely.”
HMV insisted it is making pro-gress with the “repositioning” of its retail business. To offset the slide in sales of traditional media, it has “accelerated the evolution of our product mix towards technology”.
Discount bid to woo shoppers
TWO-THIRDS of retailers are discounting early in an attempt to lure shoppers, according to a survey.
Consultancy Pricewater-houseCoopers’ survey of 100 retailers found 66 per cent have sales or promotions in their windows, up from 55 per cent a year ago and 63 per cent in 2009. However, discounting has not reached 2008’s level of 80 per cent. Its survey of 100 retailers found average price discounts of 45 per cent, level with last year but up on 35 per cent in 2009.
PwC partner Randal Casson said: “The recent burst of wintry weather is an early Christmas present for retailers to help them move their seasonal and winter stock.”