HMV warns over banking covenant

High street gaming and music giant is latest to issue warning after turnover plummets - but total group losses were slashed

The retail industry suffered another blow today after HMV warned that it is likely to breach its banking covenant next month after a drop in sales.

With the Comet fall out showing no signs of abating, and the ongoing economic downturn impinging on consumer spending, the high street giant, which sells CDs, DVDs, games and music players, released half-year interim results for the week ended 27 October 2012.

Total sales fell 13.5 per cent for the period from £333.7m to £288.6m. But on a positive note, total group losses after tax fell from £50.1m in H1 2011 to £36.1m this year.

The firm also revealed it would be facing "material uncertainties" due to current market trading conditions, and warned of a "probable" covenant breach at the end of January 2013.

Trevor Moore, chief executive of HMV, said: "HMV has had a difficult first half. 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.

"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."

And some industry onlookers feel the difficult year could suck more well-known names into a similar scenario.

Dan Wagner, chief executive of Powa Technologies, which implements online and mobile retail platforms for high street players, said: "Although HMV has introduced various promotions to drive sales, the shift in the way consumers are buying goods has had far-reaching implications.

"HMV responded to its changing customer demands by moving towards a technology focused strategy with the sale of headphones and tablets. It appears that this strategy has not been able to compensate for the fall in CD and DVD revenue.

Wagner warned that many more retailers could succumb to a similar fate because of the accumulative effect of poor sales throughout the year.

"Retailers have to stay ahead of the game and have an effective online and offline strategy in place if they are to survive in this new technology focused era," he said.