LONDON BRIEFING:Some City analysts are now openly questioning whether the company can survive
SOAP STARS or TV talent show contestants tend to be top of the list these days when a company wants a bit of publicity for a new store. They aimed a little higher in the old days: when the first HMV shop was opened at 363 Oxford Street in London, it was composer Sir Edward Elgar who did the honours.
It was called the Gramophone Company back then, and was already well-known for its His Master’s Voice trademark, taken from Francis Barraud’s famous 1899 painting of a Jack Russell, Nipper, listening to a gramophone.
The little dog was named Nipper because of his tendency to give nasty nips on the ankles – and the present shareholders in HMV know exactly how that feels. Shares in the music and entertainment group slumped 17 per cent last week as HMV revealed mounting first-half losses, a double-digit decline in underlying sales and a halving of the dividend payment. Some City analysts are now openly questioning whether the company can survive.
With Christmas such a vitally important time for music and entertainment retailers, HMV traditionally records a loss in the first half of its financial year, which ends in April. But its losses for the six months to October 23rd spiralled from just under £25 million to more than £41 million, amid what chief executive Simon Fox described as “extremely difficult” conditions.
Sales dropped 6 per cent to £750 million – with a like-for-like decline of an alarming 16 per cent across its UK and Ireland stores – and the half-time dividend payment was slashed by 50 per cent to 0.9p a share.
Some retail sector specialists fear the worst: “These results do little to ease fears that HMV is slowly being consigned to the history books,” said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.
HMV’s products – CDs, DVDs, computer games and books via its Waterstone’s chain – are made for the internet, Bowman said, pointing out that the company’s supermarket competitors use entertainment products as “shop window offerings”, with many probably acting as loss leaders to attract customers.
That’s fine for the supermarkets, but it does not make for a successful business model for a specialist entertainment retailer such as HMV.
Fox, who ruled himself out of the running for the top job at ITV last year, is convinced there is still a future for the company. It has moved into live music (although early results have been disappointing) and is selling more gadgets, such as iPads. Some innovations, such as entertainment-related clothing, have been rather less enthusiastically received, although most analysts say Fox is making the best of what he’s got.
But will that be enough to save HMV from the fate suffered by its main rivals, Woolworth and Zavvi, which collapsed a couple of years ago? The fear remains that, whatever his efforts, the HMV chief executive will be unable to move swiftly enough to correct the deep structural problems within the business.
HMV shares, which closed at 34.5p last night, have lost more than 60 per cent of their value over the past year. This is despite a frisson of bid speculation sparked by the interest shown by the Russian oligarch Alexander Mamut. He has bought shares in HMV on three occasions in the past month and is now sitting on a stake of 5 per cent.
Mamut has made no pronouncements on his investment in the company but the assumption must be that he’s either positioning himself for its failure or giving a welcome vote of confidence in its prospects for survival.
Meanwhile, early Christmas trading at the group, which makes a third of its sales in December, was disrupted by the heavy snowfalls and the current weather forecasts make grim reading not only for HMV but for the rest of the retail sector.
There's still all to play for over the next 10 days but this is certainly the last Christmas for the HMV store opened on Oxford Street all those years ago by the composer of the Enigma Variations. HMV last month sold its leasehold on the site to the US fashion retailer Forever 21, in a near-£14 million deal. The proceeds will be used to help pay down the company's debt, currently standing at about £150 million – several million more than its current stock market capitalisation.
Trading will continue at the historic Oxford Street site into next year, but the store will close its doors for good in April. Let’s hope it’s not an omen for the rest of the HMV business.
Fiona Walsh writes for the Guardiannewspaper in London
