HMV Has ‘Significant Doubt’ About Future as Loss Widens

HMV Group Plc, the U.K.’s biggest CD and DVD retailer, said the economic downturn and weak trading conditions may cast “significant doubt” on its ability to continue.

The company said its first-half pretax loss from continuing operations, before exceptional items, widened 32 percent from last year to 36.4 million pounds ($56 million). HMV has 163.7 million pounds of underlying net debt, up 7.9 percent on last year, the Maidenhead, England-based company said in a regulatory statement.

In June, HMV reported a 123.1 million-pound ($198 million) full-year loss after taking impairment charges on the sales of Canadian outlets and Waterstone’s book chain. The stock fell as much as 28.9 percent in London trading and closed down 25 percent, or 0.97 pence, at 2.9 pence. The stock has lost 91 percent this year.

HMV faces a “monumental task” to convince suppliers to trade normally and banks that it can generate enough cash, said Philip Dorgan, an analyst at Panmure Gordon & Co., in a note. “We think that it needs to sell off both Live and 7digital.”

The board has a “reasonable expectation” that the company will have resources to continue for the foreseeable future, HMV said. “However, 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.”

Possible Sale

The company has begun a review of HMV Live that may lead to its sale in order to cut debt, Chief Executive Officer Simon Fox said by phone. HMV paid about 60 million pounds for the business and would “expect it to be a very desirable asset,” Fox said. The unit is performing well, with attendance up 30 percent in the summer festival season, he said.

The company has 90 million pounds of debt due in September 2013 and is looking to raise funds from a potential sale of HMV Live before an interest-rate increase in January 2013, Fox said. “It’s because our level of debt is too high,” he said.

Traditionally, HMV gets 30 percent of sales in December and expects to benefit from Saturday trading in the run-up to Christmas, Fox said. The company forecasts single-digit contraction in December same-store sales, Fox said. Christmas sales are “not where we want them to be,” he added.

The company said in June it will cut back on CDs and DVDs in favor of consumer electronics. Products such as MP3 players and headphones represent 12 percent of HMV U.K. sales, with 144 of the 256 stores refitted with an extended technology range, Fox said. Same-store sales from continuing operations fell 11.6 percent, compared with 15.5 percent last year, according to the statement.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE