HMV Group issues third profits warning

Troubled music and DVD retailer HMV has issued its third profits warning this year, but said it had gained a two-month extension from its bankers for tests on loan conditions.

It said it expected full-year pre-tax profits to be around £30m, compared with an estimate of £38m one month ago.

The group said trading conditions remained "difficult".

However, banking facilities remained fully available and lenders continued to be supportive, it added.

Talks with lenders concerning changes to its loan facilities were ongoing, it said.

Shares in the group fell by almost 20%, closing at 12.25 pence, following the statement. They have now plunged about 80% in the past 12 months.

HMV said it had negotiated an extension on lending tests by its banks, which will now cover the 12-month period to 2 July, rather than 30 April.

Banks set specific conditions on loans, for example the amount of capital a company holds to secure them, and they will test these conditions at regular intervals.

Last month, HMV said it expected to fail the tests set by its lenders if they took place in April.

Store closures

The group owns 285 HMV stores and 314 Waterstone's bookstores in the UK and Ireland.

Its international business comprises 125 stores in Canada, five in Hong Kong and two in Singapore.

At the end of March, HMV said it was exploring options to sell its Waterstone's stores, but said no discussions about a sale were taking place.

Founder Tim Waterstone, together with Russian billionaire Alexander Mamut, is reportedly looking at buying back the chain.

It also said it was exploring strategic options for HMV Canada.

HMV is closing 60 stores this year as a result of falling sales. Over Christmas, sales dropped 13.6% in the UK and Republic of Ireland.

The company has faced fierce competition from supermarkets and online retailers such as Amazon and iTunes.

"Customers are enjoying the convenience of being able to buy at a time which suits them as well as the ability to download music directly onto their music player," said Matt Walton, retail analyst at Verdict Research.

He added that the benefits of being the last major chain on the High Street had now largely disappeared.

Seymour Pierce analyst Kate Calvert said that HMV's strategy was not working.

"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."