How long before HMV turns out the lights?

HMV Group looks like it’s likely to be next victim on the British High street after a catalogue of recent bankruptcies including Clinton cards, Game and Peacocks. Today HMV warned that it was likely to breach banking covenants in January after faltering sales in the last few weeks in the run up to the crucial Christmas period.  The shares are down a whopping 40% to 2.45p with the business apparently in terminal decline and with the market capitalisation dropping to as little as £10.5 million.  It looks like rather good timing for ex-Chief Executive Simon Fox who departed in August for a new role at Trinity Mirror.

Like-for-like sales were down 10.2% in the 26 weeks to October 27 in its 230 stores. Pre-tax losses narrowed from £48.1m to £37.3m, and the loss per share fell from 11.3p to 8.8p.

The current Chief Executive, Trevor Moore, and ex-Jessops man said that ““constructive discussions with the group’s banks including keeping them fully informed in relation to current trading”. But the omens don’t look good and very similar to the situation prior to the demise of Game in March 2012.

With the ever progressing trend for entertainment products like games and DVDs to be bought on-line and the high street store cost base making HMV’s pricing relatively uncompetitive, a turnaround by Moore looks increasingly unlikely.  Whether the banks will be as cooperative as the today’s news suggest is the key question, but with  the risk of credit insurance being withdrawn which was the downfall of Comet, the odds are against HMV in the current weak consumer spending environment. Potentially yet another big hole in the high street to come without a miracle!

Contrarian Investor UK