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LONDON (AFX) - HMV Group PLC, the troubled music and books retailer, has warned on full year profits again, blaming a further deterioration in trading conditions since January, particularly in its overseas markets and at Waterstone's.
The group said its like-for-like sales for the nine weeks to March 10 fell 3.0 pct.
'The board has taken a cautious view for the balance of the year and it now expects full year profits to be below the current range of market expectations,' it said.
Prior to today's statement analysts were forecasting a year to end-April 2007 underlying pretax profit of about 64 mln stg, down from 98.2 mln stg last time.
It said that in HMV UK & Ireland, although sales have performed in line with the most recent disclosure, with continued market share gains in all product categories, the planned improvement of gross margin and some of the targeted cost savings have not been delivered.
It said further changes have been made to HMV UK management and it is confident these initiatives will now begin to gain traction.
On the positive side it also noted the remaining seven weeks of the financial year include the UK launch of the Sony PlayStation 3 games console and Easter.
The profit warning accompanied news of the group's strategic and operational review, with new chief executive Simon Fox detailing an 'exciting, radical and far-reaching' three-year programme to transform the business.
Fox identified three key areas of focus -- driving cost efficiencies, revitalising the core business and establishing new channels.
He is targeting cost savings of 40 mln stg per annum by 2009/10, achieved through simplifying the HMV UK and Waterstone's supply chains, maximising group purchasing and head office synergies and from the review of the UK store portfolio.
HMV UK will launch an enhanced range of portable digital products from suppliers including Apple, Bose, Samsung and Sony. A new HMV store format is being developed and will be piloted from autumn 2007.
Waterstone's will grow its children's book proposition and will offer a range of high quality gift stationery.
Also a loyalty card to drive spend across both brands and all channels will be rolled out during 2007/08.
HMV will also launch a 'social networking site' for music, film and games enthusiasts, providing revenue streams from advertising, sponsorship and paid-for content. Strategic content partnerships have been agreed with Universal Music and 20th Century Fox.
HMV UK is also partnering with 3, the mobile phone company, providing content to its 3.75m subscribers. A number of HMV's larger UK stores will also host 3 in-store concessions.
The group expects growth in HMV.co.uk and Waterstones.com will be accelerated by increased marketing, enhanced functionality and closer integration with stores.
It is targeting for HMV.co.uk to become 20 pct of HMV UK sales by 2010, and Waterstones.com 9 pct of Waterstone's sales.
The group expects capital expenditure will remain at 50-55 mln stg per year, with expenditure on new initiatives financed by savings from reduced new store openings.
It said the current market expectation for the full year dividend is currently covered by earnings and free cash flow but at levels below previous guidance. The group flagged that it intends to rebuild dividend cover to around 2.0 times within three years.
The group's gearing levels are currently above existing guidance levels. However, it intends to return to existing guidance levels within two to three years.
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