HMV Takes Another Tumble

HMV’s third profit warning of the year saw its share price tumble a further 20 percent to 12.25 pence and had analysts predicting it now has little choice but to break up the business or issue more shares.

The company was able to announce that its bankers had delayed its annual loan covenant tests from April 30 to July 2, but the latest profit warning – which cut the estimate from £45 million to £30 million – was enough to have spooked its investors.

On April 6, the day after the profit warning, the shares had fallen a further 4.1 percent to 11.75 pence within two hours of the London Stock Exchange opening for business.

HMV said its banking facilities remain fully available, the group’s lenders continue to be supportive and the group is maintaining a regular and constructive dialogue with them. But Seymour Pierce retail analyst Kate Calvert told The Guardian she’s worried that the troubled music retailer is averaging nearly a profit warning a month.

“The speed of deterioration in profitability of this business confirms that management’s strategy is not arresting the very real structural pressures on the core retail business from online. More radical action is needed, we believe, in terms of store closures or breaking up the business,” she said.

The Independent reckons HMV may have only a couple of weeks to agree a deal to sell Waterstone’s bookstore chain to Russian billionaire Alexander Mamut as it looks for ways to cut its bank debt and put itself on a firmer financial footing.

Mamut has recently increased his holding in HMV, which prompted stories that he’s considering buying the entire company.

Last month HMV put Waterstone’s up for sale, two months after closing 60 of its own music stores.

Since the beginning of the year, HMV shares have lost almost two-thirds of their value. It’s in a particularly difficult position because its core business of selling CDs, books, DVDs and games is moving online.

The company has tried to diversify into a 360-degree music company, but the purchase of the venues, festivals and management companies run by Mama Group is said to account for over £46 million of its £130 million debt.