HMV shares down -7.25p 22.3% drop (25.25p) - 09:20am

City News Desk

HMV has seen its share price plunge by 22% this morning with the news that sales over the Christmas period have been lower than expected, and the company is to take “aggressive action” to prevent further loses.

HMV has plans to shut 60 of its 285 stores in the next 12 months with sales falling and a profits warning in sight, the company is now looking at keeping costs down.

HMV had previously denied reports over store closures, when news emerged late last year that plans were in place for closure of some of its London stores, and responded that it would be "renegotiating" with landlords over leases.  In a statement to the London Stock Exchange the news of closures was confirmed:

"The challenging entertainment markets, combined with the severe weather over our peak trading period have had a negative impact on our trading year to date. In addition, there are well-reported consumer headwinds as we enter 2011."

"We are taking aggressive action as we continue to tightly manage our cost base. We expect to exit around 60 stores across our UK businesses over the next 12 months as we seek to re-shape our store portfolio. In addition, we have identified a further £10m per annum of cost savings from across the Group."

"The combination of more challenging trading conditions, off-set to an extent by a significant step-up in cost savings, leads us to expect, with four months of the year to go, that profit before tax and exceptional items for the full financial year will be around the lower end of the current range of market expectations."

Commenting, Chief Executive Simon Fox said:

"Whilst HMV has had a challenging year to date, it remains a profitable and cash-generative business and a powerful entertainment brand. The pace of change in the markets in which we operate underlines the urgency with which we must continue to transform this business.

"Progress at Waterstone's this year has been pleasing, and we remain on track to meet our business and financial objectives for the end of the first year of our turnaround programme."

"Given the difficult trading conditions over Christmas and the likely outturn for the year, the Board now expects that compliance with the April covenant test under the Group's bank facility will be tight and is taking further mitigating actions during the next four months to address this."

Photo credit: Simon FOX HMV Chief Executive