HMV’s Top Dog could be in the kennels once again

February 3rd, 2020 Posted by accounting, alastair, blog 0 comments on “HMV’s Top Dog could be in the kennels once again”

written by alastair barlow [blog]

HMV has been in the news recently so I thought I would dig in a little deeper to see what was going on with its performance and strategy. Have a read below for my take on this once high-street super-giant!

HMV enjoyed significant growth since it opened its first store in London’s Oxford Street in July 1921, that is until its last 6 turbulent years anyway.

For those few who didn’t frequent HMV every Saturday like I did as a teenager (looking for European techno CDs), or walk past one on every high-street, it specialises in the retail of pre-recorded music.

Initially HMV grew its store base around London and expanded to a portfolio of 25 stores by the late 1960s. HMV continued to be a strong brand on the high street and the advent of the CD, and later the DVD, were major catalysts for worldwide growth to more than 400 stores.

However, more recently it has struggled with competition and generally being very late to the party to capitalise on its brand in the digital and online race.

In order to understand where it is today and where it could be going, it’s important to understand where it’s been! So, here goes…there have been 3 main “owners” in the past 6 years to get your head around:

1. HMV Group plc – the original group born out of EMI that listed in 2002.

2. Huk 39 Limited – owned by Hilco Global, the American group that bought HMV out of administration in 2013.

3. Sunrise Records and Entertainment Limited – owned by the Canadian group Sunrise Records that bought HMV out of administration in 2019.

So, why has this retailer gone through 2 administrations in recent years? Here are some key points to note in each of these owners’ “acts”: Act 1

• HMV Media Group plc was formed in 1998, following the acquisitions of HMV, Dillon’s and Waterstones.

• In 2002, the newly named HMV Group plc was listed on the London Stock Exchange.

• At its peak, it operated 285 stores across the UK and RoI, and held the position of the UK’s largest specialist retailer of music, film, computer games and books.

• Trading started to deteriorate significantly from 2010 onwards (2010: £2bn, 2011: £1.15bn, 2012: £0.87bn).

• The Group announced its intention to close 40 HMV and 20 Waterstones stores which resulted in a 20% drop in share price.

• A divestment strategy followed whereby Waterstones was sold for £53m in June 2011, HMV Canada was sold for £2.0m to Hilco and a number of other businesses were offloaded.

• Deloitte were appointed administrators in January 2013 putting 4,350 jobs at risk.

Act 2

• In January 2013, Hilco bought the £176m debt from the HMV administrators significantly below par. This effectively put Hilco in control of HMV’s future.

• In April 2013, the HMV business was bought out of administration by HMV Retail Limited (owned by Huk 39 Limited aka Hilco) for an estimated total of £50m, saving 141 stores and 2,500 jobs.

• Following a restructure of the business; store rationalisation and renegotiations with suppliers and landlords it posted positive EBITDA results from 2013 through to 2017.

• However, revenues dropped from £311.3m for the 39 weeks in 2013 to £235.8m in the 52 weeks in 2018, a like-for-like fall of 43% over those 5 years.

• Finally, in December 2018, KPMG were appointed administrators of this latest HMV incarnation.

Act 3

• In February 2019, HMV was acquired out of administration by Canadian company Sunrise Records (run by music mogul Doug Putman) for an alleged £883k (the same buyer of HMV Canada when it when into administration only a couple of years earlier).

• Sunrise Records opened the Vault in Birmingham in October 2019, the largest HMV record store (the size of 12 tennis courts).

• In January 2020, HMV confirmed 3 stores will close with others likely if they can’t renegotiate landlord deals. If you want to read my views on their strategies and what went wrong, you can read the full article on AccountingWEB’s website here.