Music and books group HMV hit the market with another profits warning today, sending its shares tumbling, but unveiled a series of moves aimed at fighting back against its online competitors.
These include a new range of portable digital products from suppliers including Apple and Sony, together with the launch of a social networking site for music, film and games enthusiasts. It also plans a new store format, with juice bars and interactive kiosks.
Unveiling what he said was a "radical" three-year recovery plan, chief executive Simon Fox said this morning that trading conditions have continued to deteriorate at the group since January, particularly at its Waterstone's books chain and in overseas markets.
Margins have not recovered as expected and planned cost savings have also fallen short of target. As a result, group profits this year will miss City expectations, Mr Fox warned. This is HMV's second profit warning in three months and follows its £36.4m tumble into the red over the first half.
The group has admitted being too slow to recognise the changing shape of the music and entertainment industry and has been hard hit by competition from online specialists such as Amazon and Play.com, as well as supermarkets such as Tesco with their offers of bargain books, CDs and DVDs.
Mr Fox said today that Waterstone's and HMV "are great brands, but have not adapted quickly enough to the way customers are now buying and consuming media. Our performance has suffered as a consequence."
Unveiling the group's new strategy, Mr Fox said: "There is a great deal to do and I have every confidence that this plan will turn the business around."
The City was not so confident and shares in the group tumbled 24.25p to close at 128.5p - well below the 210p a share bid from private equity group Permira rejected a year ago.
The strategic update failed to impress analysts. "We remain very sceptical about the group's future prospects as we do not see how these initiatives will save HMV from the structural problems it faces," said Jose Marco-Tobares at Numis.
Nick Bubb at Pali International, who is cutting his profit forecast for the group from £64.5m to £57.5m, said the plan appeared "a little underwhelming". He is also disappointed that the long-awaited "store of the future" will not be trialled until the autumn.
Other analysts reduced their forecasts even further, with Andrew Wade at Seymour Pierce slashing his figure from £65m to £50m , and from £71m to around £55m for the following year
Mr Fox, who took over as chief executive last September, said he plans to push through cost savings of £40m a year. This will include the closure of between 20 and 30 Waterstone's stores, largely in areas where it has Ottakar's outlets. It will also exit the half dozen stores it currently has on university campuses.
Waterstone's currently trades from 330 stores and HMV from 235.
Other moves aimed at returning the group to growth include a wider children's range at Waterstone's, the introduction of a range of high quality gift stationery and the launch of a loyalty card.
Content partnerships have been lined up with Universal Music and 20th Century Fox for its social networking site, and HMW will also provide content to mobile music retailer 3's 3.75 miilion subscribers. A number of HMV's larger UK stores will also host 3 in-store concessions.
Mr Fox aims to have HMV.co.uk account for 20% of the music retailer's UK sales by 2010, and Waterstones.com for around 9% of the bookseller's sales in the same timeframe.
