HMV Considering Selling Live Division to Boost Finances

2:00 AM PST 12/20/2011 by Richard Smirke, London

The struggling U.K. entertainment retailer saw total sales drop 17.6% in the second half of 2011.

Struggling U.K. entertainment retailer HMV is considering selling its profitable live division, HMV Live, following yet another significant drop in sales.

HMV Group posted a total loss of £50.1 million ($77.8 million) for the 26-week period ending 29 October 2011, from a £30.9 million ($47.9 million) loss in the same period last year, according to its latest financial results.

Total sales from continuing operations were down 17.6% falling from £442.7 million in 2010 to £364.9 million in the first half of this year.

HMV Retail half-year sales were down 19.4% falling from £413.9 million in 2010 to £333.7 million. The disappointing sales performance resulted in an operating loss of £33.1 million, £8.8 million down on the previous year.

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HMV Hong Kong and Singapore, however, traded well throughout the period with like-for-like sales up 18.3% on last year. Having shuttered 15 U.K. outlets in the past 6 months, HMV's total retail estate stood at 249 stores and 9 Fopp music outlets as of 29 October. 

Despite selling its bookstore business Waterstones and its Canadian division earlier this year, coupled with securing a revised two-year £220 million credit facility in June, the company's net debt stands at £163.7 million, up £12.1 million from a year previous. 

"The first half of the financial year has been a challenging time for the Group, as we have concentrated on restructuring our business, allowing us to increase focus on turnaround opportunity in HMV Retail and HMV Live," chief executive Simon Fox said in a statement included in the report. "Market conditions remained difficult in the first half with the structural declines in our core markets being additionally affected by the tough economic climate faced by the consumer," Fox went on to say.

With the next testing of HMV's banking covenants due to take place at the end of January 2012 and quarterly thereafter, the report goes on to warn that "if future trading, particularly across the Christmas period, and the commercial terms support from suppliers is not in line with forecasts then there is a risk that the Group may breach its banking covenants."

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To strengthen the company's finances the Board says that it has initiated a strategic review of the HMV Live business, which grew profits and sales in the first-half interim of the year.

HMV Live, which comprises of 13 U.K. venues and has stakes in several British festivals including Global Gathering and London's Love Box, posted operating profits of £3.4 million, up from £1.5 million in 2010.

The on-going restructuring of HMV's retail offer, which has seen 144 U.K. stores refitted to contain an extended range of high-spec technology products, also appears to be having a positive impact, with sales of technology and related products growing 14% in the first half, compared to 12% growth in 2010. Whether that is enough alone to significantly improve HMV's standing come next year seems unlikely, however. For the 7 weeks leading to 17 December 2011, HMV reported that total like-for-like retail sales were down 13.2% on the same period last year, although the corresponding 2010 7-week period does include an additional, potentially lucrative Saturday trading day. 

"We have taken decisive action to restructure the business and are now seeing the benefits of this, particularly in our technology products business," said Fox in a statement. "Like all consumer-facing companies we are facing tough trading conditions but we continue to push forwards through this period. We remain well prepared for the key trading days ahead."

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