HMV Group has “almost certainly” failed to deliver a Christmas trading performance strong enough to avoid breaching its banking covenants later this month.
The 238-strong chain has yet to set a date for its festive update, but in the meantime talks are continuing with its network of banking lenders.
HMV warned in mid- December that it would likely breach covenants in the forthcoming regular review of its debt pile, which stood at slightly more than £176 million.
Newly recruited chief executive Trevor Moore said at that time that the group would focus all of its efforts on delivering a strong performance during the “hugely significant” Christmas trading period.
However, that seems increasingly unlikely as sales of physical CDs continue to plummet amid the rise of digital downloads.
“Given what we’ve heard this week, HMV has almost certainly failed to meet the targets it would have liked to achieve,” said one analyst who asked not to be named.
Independent retail analyst Nick Bubb agreed, adding that HMV would have needed a “huge uplift” in the weeks before Christmas to make up for losses in October and November.
“It is pretty unlikely,” he said. “I mean, the stores were packed, but their stores always look packed.”
Last week, the British Phonographic Industry reported that sales of albums on CD fell by 19.5 per cent in 2012 to 69.4 million, a 44 per cent slump from five years earlier. Meanwhile, downloads of albums have almost trebled during the same period.
A weak festive performance will further limit the options for HMV, which is working with its suppliers and bankers to devise a survival plan.
The group is being stalked by US vulture fund Apollo Global Management, which has bought about 10 per cent of HMV’s debt in a bid to take control of the business. However, other banks owed money by HMV are reportedly reluctant to strike deals at the fire-sale prices on offer from Apollo.