HMV fears breaching banking covenants
HMV has said there are “material uncertainties” facing the business as it enters its crucial festive trading period.
The chain warns that it is likely to breach its banking covenants at the end of January.
Total sales are down 13.5 per cent on the same period last year but losses have narrowed to £37.3m from £48.1m.
The first half year results under recently appointed CEO Trevor Moore show like for like sales for the six months until 27 October dropping 10.2 per cent year on year. This is slightly less compared with the 11.9 per cent drop in like for like in 2011.
HMV has been experimenting with new store formats and product offerings. In August it opened a new store in Cambridge with a “high profile” tech department, free Wi-Fi, cafe and charging points for mobile devices.
However, the retailer is under pressure from the accelerating trend for online shopping. Latest Ofcom research shows that UK citizens on average spend more than £1,000 a year shopping online, far ahead of other territories including the United States and Japan.
Moore says: “HMV has had a difficult first half. However, the business has started to deliver a number of new initiatives which will help to maximise the seasonal sales opportunity and provide a platform for growth in 2013.”
He also signalled “new initiatives” with HMV’s key suppliers, who have been supportive throughout its trading difficulties and who have a collective 2.5 per cent stake in the business. Earlier this week they offered greater access to back catalogues and new conditions on unsold stock and an additional £40m funding, according to The Telegraph.
Senior consultant at Conlumino Joseph Robinson says the warning of a potential covenant breach “raises very real concerns about the future of the business” and that HMV has little opportunity to build revenue through market share gains.
“The unfortunate fact remains that HMV’s proposition has become increasingly irrelevant in the modern retail landscape. While the retailer has been proactive in attempts to evolve its proposition through a greater focus on technology, this does not constitute a persuasive long term plan for survival. Furthermore, the Christmas period is unlikely to bring much respite; high consumer demand for technology will be directed towards online and specialists high street operators such as Curry and Apple, while HMV has the grocers to contend with in attempting to pick up the dregs of demand for physical entertainment products.”
HMV has just sold off its last remaining interests in live music venues so there are few assets left to liquidate
The chain recently upset some staff by insisting on a no visible tattoos and piercings policy.