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HMV Group shares plummet after profits warning

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Entertainment retailer HMV Group has announced this morning that profit-before-tax (PBT) for the financial year will be below market expectations after experiencing “challenging” trading conditions.

HMV’s share price stood at 16.50 pence per share by 09:00 GMT following the update, over a 20 per cent fall in price compared to close of trading yesterday.

To make matters worse for the embattled retailer, compliance with year-end covenants under its bank facility are set to be tight, with net debt set to be no less than £130 million, and it is in discussions with its lenders regarding a possible change to its agreements.

Simon Fox, CEO of HMV, said: “Trading conditions remain tough, reflecting a difficult consumer environment as well the changing markets in which we operate.

“However, our business is adapting quickly to respond to these external factors, and we are confident that our plans will ensure its long-term and sustainable future.”

The retail group, which owns the HMV and Waterstone’s businesses, announced the closure of 60 of its UK stores in January with many already shutting down.

Previous market expectations set the median PBT for HMV’s full financial year at £45 million and so the actual figure will most likely be around £40 million.

Nick Bubb, Retail Analyst at Arden Partners, commented: “It is no surprise to hear HMV admit in today’s unexpected trading update that life has been “challenging” since Xmas. No figures have been supplied, but we would assume further double-digit like-for-like sales declines in the core business, as expected.

“The shock is that HMV has flagged that year end net-debt will be way higher than expected at around £130 million (we had a £70 million net debt forecast), because of a working capital squeeze and what it calls “changes in product mix”.

“The banks are said to be supportive of HMV’s strategy, but we think this debt disaster will increase the pressure on the group to either sell Waterstone’s or raise emergency equity.”

Published on Tuesday 01 March by Editorial Assistant

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