January 9, 2012 / 7:26 AM / 8 years ago

UPDATE 2-HMV puts faith in shift to technology

* 5 weeks to Dec. 31 retail like-for-like sales down 8.2 pct

* Says confident in firm’s future and prospects

* Says shift to technology products paying off

* Shares down 6.7 pct

By James Davey

LONDON, Jan 9 (Reuters) - Struggling British entertainment retailer HMV is pinning its hopes of survival on a shift in emphasis from CDs and DVDs to growth markets such as headphones and tablet computers after a sharp fall in Christmas sales.

Shares in the group, which last month posted wider first-half losses, warned it was in danger of going out of business and put its HMV Live music venue division up for sale, fell nearly 7 percent on Monday after it said sales at stores open over a year plunged 8.2 percent in the five weeks to Dec. 31.

That was an improvement on like-for-like sales down 13.2 percent in the seven weeks to Dec. 17 but largely reflected an extra Saturday (Dec. 24) of Christmas trade this year.

Saddled with 164 million pounds ($253 million) of debt the 91-year old firm, which trades from 256 stores in Britain and Ireland, employing 4,500, is suffering as a downturn in consumer spending accelerates the long-term decline of its core CDs and DVDs markets.

HMV, famous for its Nipper the Dog trademark, is also facing intense competition from internet retailers and the rise of digital downloading as well as the march of grocers such as Tesco into general merchandise ranges.

But despite reiterating that “material uncertainties” may cast doubt on the firm’s ability to continue as a going concern in the future, Chief Executive Simon Fox said he was actually optimistic about the group’s prospects.

“We still feel confident in the future of the business and the fact that it’s going to be around for some time to come. We’re heading in the right direction and we have a supportive group of stakeholders,” he told reporters, noting constructive dialogue with its bankers and suppliers.

“We feel confident because the measures we are taking to start to turn the business around are starting to bear fruit,” he said.

Fox highlighed 144 stores refitted with an extended technology range of portable digital products, which delivered an increase in technology like-for-like sales of 51 percent in the five-week period.

He said the firm sold 500,000 pairs of headphones in December and 20,000 tablet computers.

Prior to Monday’s update shares in the firm, the last national music and movies chain on Britain’s town centre shopping streets, had lost 88 percent of their value over the last year.

They were down 0.2 pence, or 6.7 percent, at 2.8 pence at 1038 GMT, valuing the business at about 12 million pounds.

“It is fortunate that there appears to be a lot of interest in bidding for the HMV Live division, bearing out Fox’s confidence that a sale could realise well over 60 million pounds and keep the group out of jail for a while longer,” said retail analyst Nick Bubb.

Media reports have suggested Time Out owner Oakley Capital, O2 arena owner AEG and Pacific Global Management as possible bidders for the division, which runs 13 venues including the Hammersmith Apollo in West London.

HMV may also consider the disposal of its stake in digital business 7digital, though there was currently no formal process.

Fox said he did not expect analysts’ consensus forecasts for the year to end-April to change from about breakeven.

UK shoppers’ disposable incomes are being squeezed by rising prices, muted wages growth and government austerity measures.

Separately on Monday Britain’s fourth largest grocer Wm Morrison Supermarkets reported a slowdown in sales growth over Christmas and predicted cash-strapped shoppers would remain reluctant to spend this year.

This message was echoed by Shop Direct, the UK’s largest online and home shopping retailer, which posted higher Christmas sales but forecast lower sales in 2012.

For a FACTBOX-How UK retailers fared over Christmas, please click on:

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