A worse-than-expected update from HMV last week prompted analysts to question the entertainment retailer’s strategy in the face of contracting markets.
Singer Capital Markets analyst Matthew McEachran described HMV’s fourth quarter as “a stinker” after like-for-like sales at HMV UK & Ireland slumped 13.2% in the 16 weeks to April 24. Revenue declined 8.2%.
At Waterstone’s, the like-for-like sales decline improved to a 4.8% drop and total sales fell 4.3%. The improved trend reflected the initial impact of turnaround initiatives, despite the impact of severe weather, the retailer reported.
In the 52 weeks to April 24, group like-for-like sales slumped 4.3%, while revenue increased 1.8%.
HMV was confident that group pre-tax profits will be “in line with market expectations” and “comfortably ahead of last year”.
The retailer blamed “very strong comparatives in this period in the previous two years and reduced levels of campaign activity this year combined with the impact of severe weather at the beginning of the period” for the decline. UK gross margins are expected to be up about 50 basis points for the full year.
Oriel Securities analyst Ben Hunt said the “worse-than-expected” figures had led to “a feeling management is pushing water uphill”.
Shore Capital analyst Kate Calvert said the like-for-like decline of 13.2% was “not a pretty number” and a “massive change” on the 1.4% growth reported for the 12 weeks to January 2.
HMV chief executive Simon Fox said: “HMV UK, as expected, had a difficult fourth quarter, and we planned accordingly, by tightly managing margins and discretionary costs. However, the severe weather in early January and reduction in campaign activity in favour of preserving margin further impacted the like-for-like out-turn.
“We are progressing our strategy to rapidly evolve HMV’s product mix, grow the new HMV Live division and continue to turn around the performance at Waterstone’s.”
McEachran reduced his April 2011 forecast by just 3%, reflecting progress at Waterstone’s, the anticipated benefit of initiatives at HMV, and cost savings in all divisions.
He said: “The clothing offer could deliver a revenue uplift of about £50m, part of which will be delivered in the next 12 months.”
HMV’s launch of entertainment-inspired fashion ranges launched in Leeds this week, while the roll-out of Waterstone’s range repositioning, local promotions and brand re-launch is also on schedule.