Shares in HMV plunged yesterday after its new chief executive confirmed the entertainment group was in talks with banks over its future.
Trevor Moore warned that worse-than-expected trading in the run-up to Christmas suggested the group would not meet its financial expectations for the year to April.
As a result, the terms of its bank loans are not likely to be met in January and April, placing the future of the 238-strong chain under threat.
HMV said like-for-like sales fell 10.2% in the 26 weeks to October 27, as its pre-tax losses narrowed to £36.1 million, compared to £50.1m the previous year.
The dismal results come despite reports that HMV has received £40m in financial support from its suppliers in a bid to keep it going over the vital festive period.
HMV shares tumbled 39% immediately after the update yesterday, giving the retailer a market value of just £10.1m.
Suppliers including Universal Music came to HMV’s rescue last January with a deal which helped the retailer shed some of its huge debt pile.
Music publishers and film studios are keen to see the struggling business survive as internet retailers like Amazon chip away at their profit margins.
It is understood that HMV has secured improved access to music and film suppliers’ back catalogues and is buying stock on consignment, meaning it pays only for products if it sells them.
The firm’s struggle has seen it sell off several parts of its business, including the Waterstones book retailer, and close loss-making stores in a bid to reduce its debts.
HMV recently offloaded its Hammersmith Apollo venue for £32m, which enabled it to thrash out a new deal with lenders.
It said yesterday that sales in the first half of the year were hit by the light release schedule as suppliers held back on significant product launches due to the Olympics.
The group said it managed to boost its share of the declining market by ramping up promotional offers on CDs and DVDs.
At the end of the period, the business had a 38% share of the physical music market and a 27% share of the DVD and Blu-ray market.
Mr Moore said closing more stores or placing the business into administration was not “part of our plan”.
He said: “It’s been a tough first half but we’ve reduced losses and, in a difficult market, we’ve continued to grow share.”
In May, when former boss Simon Fox was still in charge, the group said it was looking for pre-tax profits of at least £10m for the 2012/13 financial year.
Freddie George, analyst at Seymour Pierce, said he was “unconvinced” that measures taken by the group were enough to “offset the structural pressures on its core business of music, vision and gaming”.
He added: “We continue to see HMV as a value trap with potentially insurmountable structural issues.”
Shares closed down 39% or 1.6p at 2.5p.