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HMV still struggling as its store sales slump 15% in the first quarter

Struggling HMV is seeing little signs of an improvement in its business, as the decline in CD and DVD sales continues.

The retail group said at its annual meeting that total sales in its shops for the first quarter were broadly unchanged, showing a like for like sales decline of 15.1%. Total sales, including the impact of 29 store closures and its HMV Live business, fell 19.4%.

It reckons its plan to move further into the technology market – surely an overcrowded one already? – was on track. Like for like sales in its first six Fast Forward stores grew by 100%, and it expects the rollout of the format changes to be completed in the majority of its planned 150 stores by the beginning of October. Chief executive Simon Fox said:

Overall our plans for the Christmas trading period are on track, and we are focused on providing HMV customers with the very best offers across all of our product categories and live venues.

As part of its refocusing it sold HMV Canada and Waterstones, and has entered into new credit facilities of £220m with its banks. But some analysts believe it will still need a cash call next year, and despite the shares remaining steady at 6.5p, a number have issued sell notes following the update. Freddie George at Seymour Pierce said:

Management is maintaining its strategy to develop HMV into a broad entertainment brand and believes it can return margin to 3-4%. We remain sceptical given the structural pressures in its core market place of physical music and gaming and do not believe that the move, more aggressively, into portable digital technology will be strong enough to drive footfall and earnings. We maintain our sell recommendation as we continue to believe that the business is a value trap and management will struggle to grow profitability. We are forecasting 2012 pre-tax profits of £2m and earnings per share of 0.4p.

Espirito Santo also has a sell rating, saying:

Much will depend on the group’s performance through Christmas, but there is no compelling reason for us to believe that trends will improve materially in the next few months, barring the annualisation of poor weather/snow into peak.

Ben Hunt at Oriel Securities joined in the chorus of downbeat comments:

These are early days and while the initial results at the new Fast Forward stores are good, we would hold back from getting too enthusiastic at this stage, we also remain skeptical about the long-term prospects for retailing in technology where competition is high.

Meanwhile the high debt levels and punitive covenants on the new revolving credit facilities mean that shares are highly risky, especially with core sales still in free fall. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds