HMV ‘must shut more shops to survive’

The embattled entertainment retailer has already outlined plans to close 60 stores across the group – comprising HMV and bookseller Waterstone’s – but the City wants to see more shops axed to improve sales densities and cut costs.

Seymour Pierce analyst Kate Calvert said: “The intrinsic value of the business is eroding every day and we believe more radical action is needed fast, in terms of store closures or breaking up the business.”

Oriel Securities analyst Ben Hunt said: “It has just got to get out of as much space as possible.” One analyst, who declined to be identified,  believes the group needs to slim its estate down to just 150 to 200. It has about 565 shops now.

HMV chief executive Simon Fox said at the Retail Week Conference last month that HMV will still have a portfolio of hundreds of stores on the high street in five years.

HMV now expects full-year pretax profits to come in at about £30m. Just last month the retailer said its profits would come in “moderately below market expectations” of £45m.

Calvert has downgraded her 2012 profit forecast 53%, to £14.1m

HMV said this week that “trading conditions have remained difficult”, but added that its lenders have agreed to move the covenant test from the 12 months to April 30 to the 12 months to July 2.

The retailer is considering all options. Russian oligarch Alexander Mamut, who owns a 6% stake in the retailer, is in discussions about buying Waterstone’s, and has about 10 days to come up with an offer.

However, it is thought trading has softened at Waterstone’s too, which would affect the bookseller’s valuation, according to Calvert.

Its Canadian business may too be up for grabs, and reports this week claimed others are eyeing HMV’s Live business, which comprises music venues and festivals.