Summary:

HMV (LSE: HMV) is to close 60 stores across the UK after suffering a sharp fall in sales over the crucial Christmas period.

The struggling…

HMV dog
photo: BL1961

HMV (LSE: HMV) is to close 60 stores across the UK after suffering a sharp fall in sales over the crucial Christmas period.

The struggling high street chain issued the retail sector’s first profits warning of 2011 this morning, dashing hopes that the company’s fortunes had improved.

In an unscheduled trading statement, HMV admitted that like-for-like sales across its UK and Ireland outlets had plunged by 13.6% in December. It also warned that it may breach the terms of its lending agreements with its banks.

HMV shares, which have already lost more than two-thirds of their value over the past year, slumped another 15% to 27.25p in early trading this morning.

The company did not say which stores will be closed, but it appears likely that there will be significant job losses across the group.

Today’s profits warning comes less than a month after HMV alarmed the City by reporting a £40m loss for the first half of this financial year. The company had been pinning its hopes on a strong Christmas, but last month’s Arctic blast appears to have scuppered its chances.

“The challenging entertainment markets, combined with the severe weather over our peak trading period have had a negative impact on our trading year to date. In addition, there are well-reported consumer headwinds as we enter 2011,” said the company. Many retailers have warned that Britain’s austerity measures, such as the VAT rise, will hurt them this year.

“Given the difficult trading conditions over Christmas and the likely outturn for the year, the board now expects that compliance with the April covenant test under the group’s bank facility will be tight and is taking further mitigating actions during the next four months to address this,” HMV added.

Chief executive Simon Fox insisted that HMV remained “a profitable and cash-generative business and a powerful entertainment brand”.

Analysts, though, have already been expressing doubts over the firm’s long-term prospects. Before today, HMV was expected to make a profit of between £46m and £60m. It now believes earnings will be at the “lower end” of expectations.

At Waterstone’s, also owned by HMV, comparable sales fell by 0.4% in December.

Fellow high street retailer Next was also counting the cost of the snow today. It reported that around £22m of full price sales were lost in December as shoppers shunned the high street, although the company’s Directory arm benefited as people ordered Christmas presents from home instead.

Fantasy games specialist Games Workshop also warned today that its profits will not meet market expectations. Its sales fell 4% in the six months to 28 November, followed by “difficult trading conditions” in December.

This article originally appeared in The Guardian.

By Graeme Wearden, The Guardian

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