HMV Warns Of Covenant Breach As Sales Fall

HMV has warned that uncertainties facing the business mean it is likely to breach its banking covenant in January.

The high street stalwart - which sells CDs, DVDs, games, music players - said it was in "constructive discussions" with banks about its performance.

Despite numerous promotions, including "2 for £15" on chart CDs and "2 for £10" on DVDs, total sales fell 13.5%, while like-for-like sales were down 10.2% in the six months to October 27.

HMV reported a loss before tax of £37.3m - an improvement on the £48.1m loss over the same period the year before.

But net debt at the the 91 year-old company increased from £163.7m to £176.1m.

Following the release of the results, shares in the company fell 39% valuing HMV at just £10.1m.

Its new chief executive Trevor Moore admitted HMV had experienced a difficult first half of the year. 

"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 said.

"Additionally, as we trade through this period we will continue to develop further initiatives with our suppliers and I will provide updates at the appropriate time."

He added that closing more stores or placing the business into administration was not "part of our plan".

HMV had responded to declining sales of music and films by focussing on games and technology products.

But the company said that despite the reduced high street presence of rival GAME - and the division's 6% sales - growth was "not as strong as the business had believed it would be".

Performance at HMV Live - the company's music venue, festival and ticketing division - was also poor, following the sale of the Hammersmith Apollo for £32m.

It also blamed the cancellation of the Vintage festival and an unpopular Lovebox festival for the fall in sales, to £25.4m from £31.2m in the previous year.

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