Entertainment retailer HMV will be closing around 60 stores over the course of this year after sales continued to stall over the critical Christmas period.
In a statement released today, HMV Group said that the reduction in its store portfolio will help it better manage its cost base as the business looks to adapt to a changing marketplace.
Difficult trading conditions over Christmas leading into what is expected to be a tough year for the retail industry as a whole have led the board to issue a warning four months before the end of its financial year.
One store in London’s Oxford Street has already been sold to make way for the arrival of US fashion retailer Forever 21.
“Compliance with the April covenant test under the group’s bank facility will be tight and the board is taking further mitigating actions during the next four months to address this,” the group said.
This action comes after like-for-like (LFL) sales at HMV in the ten weeks to January 1st 2011 were down 13.3 per cent year-on-year, with trading down most notably in the UK and Ireland where LFLs dropped 14.1 per cent.
Turnaround strategies implemented at HMV Group’s Waterstone’s business have helped improve its LFL trading year-on-year, although sales at the bookseller were still down 2.1 per cent compared to the same ten-week period in 2009.
Simon Fox, CEO of HMV Group, commented: “Whilst HMV has had a challenging year to date, it remains a profitable and cash-generative business and a powerful entertainment brand.
“The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business.
“Progress at Waterstone’s this year has been pleasing, and we remain on track to meet our business and financial objectives for the end of the first year of our turnaround programme.”
HMV said the snowy weather experienced in December played a major role in the festive sales slump, but a report produced by Investec Securities retail analysts Katharine Wynne and David Jeary suggests the problems are more deep-rooted.
“While adverse weather undoubtedly was unhelpful to the business in the UK, albeit not quantified in the statement, the core UK HMV division remains under considerable stress as a format and this must raise questions over its long-term future,” they wrote.
“This has been evident for some time, but today’s update highlights a lack of improvement in LFL sales despite easier comparatives and new product initiatives.
“The shares also go ex-dividend of 0.9p today, so the shares are likely to weaken in our view.”