HMV to refocus on gadgets as profits slump

Reuters News
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Posted: Jun 30, 2011 9:18 AM
HMV to refocus on gadgets as profits slump

By Mark Potter

LONDON (Reuters) - British retailer HMV Group Plc aims to ramp up sales of MP3 players, headphones and tablet computers to offset sliding demand for CDs and DVDs and inspire a recovery from near collapse.

The 90-year-old group, famous for its Nipper the dog trademark, has issued four profit warnings this year as a downturn in consumer spending exacerbates long-term challenges from downloading and competition from supermarkets.

Earlier this month, it secured its immediate future with a 220 million pound ($352 million) refinancing deal with banks. It has also sold the Waterstone's book chain and its Canadian arm to cut debt.

Chief Executive Simon Fox said on Thursday the group would refit 150 stores by the end of September to focus 25 percent of selling space on fast-growing portable digital products such as MP3 players and accessories like docking stations.

The move follows trials in six stores which HMV said had delivered an 8 percent improvement in like-for-like sales in those outlets compared with the rest of the estate.

Fox said HMV would stand apart from other retailers like electricals specialists such as Dixons and Kesa, Home Retail's Argos and department store chain John Lewis, which all sell the same products.

"We're selling them in an entertainment environment, in young buzzy stores, not out-of-town sheds, with trained staff. So it's a differentiated offer," he told reporters.

However, some analysts were skeptical the plans, which also include HMV focusing more on live music and event ticketing, would offset the continued decline of its CD and DVD markets in a difficult trading environment.

"We are less enthused ... Core markets will continue to create a drag on profits," Oriel Securities analysts said. "With net debt at 170 million pounds the risks to equity holders are high."

COULD GET WORSE

HMV is among a string of British retailers to run into trouble this year as consumers rein in spending amid rising prices and government cutbacks.

Several smaller chains like Focus DIY, Habitat UK and Jane Norman have gone into administration, while others, such as chocolatier Thorntons, have announced plans to close scores of stores.

Fox said he was assuming trading conditions would remain difficult and could get worse.

Earlier on Thursday, research by GfK/NOP showed UK consumer confidence fell in June, after a rise in May.

HMV, which runs around 250 stores, said profit before tax and one-off items dropped 61 percent to 28.9 million pounds in the 53 weeks ended April 30, in line with its latest guidance.

After tax and non-cash impairments charges from the assets it has sold, the group made a loss of 121.7 million pounds.

Arden Partners analyst Nick Bubb said he expected the group to break even at best this financial year and would seek to raise equity after Christmas. "The shares are still best avoided," he said.

Fox said the store refitting program would cost around 6 million pounds.

HMV shares, which have fallen 78 percent over the past 12 months, were down 0.9 percent at 9.91 pence by 1215 GMT, valuing the business at about 48.5 million pounds. ($1 = 0.626 British Pounds)

(Editing by David Holmes)