The chief executive of HMV predicted a return to profit for the music chain as he bowed out after steering the retailer through several years of turmoil during which it lurched from one financial disaster to another.
Simon Fox, who resigned last week after six years in the job, insisted the company's financial position was stable. Asked whether he'd bet his house on the chain being around for its centenary in 2021, he demurred. "That's a big bet. I'm not betting my house on that," he said, adding: "HMV has travelled a long way but that doesn't mean we don't operate in tough markets."
HMV has pencilled in profits of "at least" £10m for the coming year after film companies and record labels stepped in to support the chain and demand for new products such as headphones and tablet computers put a floor under collapsing sales of CDs, DVDs and games.
Fox was confident that HMV, which reported a loss of £16.2m for the year to 28 April, would return to the black as the profit figure had been arrived at without "making any heroic assumptions about sales". The optimism came as a relief to the City, amid fears its performance may have deteriorated sparked by the announcement that both Fox and the finance director David Wolffe were leaving. The shares, which initially rose as much as 16%, closed down 0.05p at 3.6p.
HMV, famous for its Nipper the dog trademark, has struggled to make headway in recent years as demand for its traditional products fell away. Annual sales dropped nearly 20% to £923.2m during the year as it shut unprofitable stores and faced stiff competition from websites such as Amazon as well as the supermarkets. The markets for games, music and films on DVD or CD had shrunk by between 10% and 20% during the year, the company said, as consumers cut back their spending or switched to downloading.
That pace of structural change was set to continue, Fox said, with the value of physical music sales set to fall back by another 20% this year and anywhere between 10% and 13% for DVDs. However, it hopes the computer games business will be buoyed by market share gains following the demise of rival Game.
During his time in charge, Fox, who will be succeeded next month by Trevor Moore, former chief executive of photography chain Jessops, sought to reinvent the retailer as an "entertainment" chain with new departments dedicated to the latest gadgets and accessories such as mp3 players, headphones and speaker docks. It also branched out into hosting gigs and festivals. But faced with mounting debts and a prolonged high street downturn the company was forced to sell off businesses to raise cash.
Last year it sold the Waterstones bookshops to a fund controlled by Russian billionaire Alexander Mamut for £53m and is selling its live music arm. It has already sold the Hammersmith Apollo, one of the most popular London venues, for £32m.
In January HMV's suppliers, who recognised the collapse of the last remaining national music and DVD specialist would potentially be more financially damaging to them than its shareholders, agreed to offer more beneficial trading terms. The prospect of higher profit margins helped HMV to secure new loan agreements with its banks.
The altered set-up may have put HMV on a surer footing, but some analysts argue that the retailer is not out of the woods. It still has debts of £166m and makes all its profit during the Christmas trading period. Financial travails have been reflected in the collapse of its share price, which values the company at £16m.
Panmure Gordon analyst Philip Dorgan said that given the steep drop in music and DVD sales anticipated this year it would have its work cut out trying to make up the lost ground selling the technology products which contribute 11% of sales. "HMV will be running up the down escalator and there must be some doubt as to whether this strategy will work," he said.
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