LONDON BRIEFING:Despite a few months' grace on its £130 million debt, a changed market has taken its toll

THE DEATH throes of HMV are becoming uncomfortable to watch. Yesterday, the 90-year-old music, films, games and books group hit the City with its third profit warning of 2011 – and the fifth since last September. This sent its shares slithering another 20 per cent, to just 12.25 pence. A year ago, they were trading at 90 pence. Two years ago, they were 150 pence. How much longer can the agony continue?

HMV’s embattled management looked to have been thrown a lifeline yesterday as the group’s bankers, led by Royal Bank of Scotland and Lloyds Banking Group, agreed to give the retailer extra time – until July 2nd – to meet the covenants on its crippling £130 million debt.

But, with profit warnings coming monthly, there is no reason to believe HMV will be any better-placed to meet its loan agreements in July than it is now.

Rather than representing a vote of confidence in HMV’s ability to survive, the bankers’ indulgence almost certainly owes more to their desire to see a slightly more orderly break-up of the business than if they pulled the plug today.

Urgent talks on the sale of the Waterstone’s books chain are under way with Russian oligarch Alexander Mamut working with the chain’s founder, Tim Waterstone, on a deal to buy.

Billionaire Mamut, who once advised former Russian president Boris Yeltsin, has built up a 6 per cent stake in HMV, shares now worth substantially less than he paid. A price of £75 million has been mooted for the 300-shop Waterstone’s chain but, as a forced seller, HMV is not in the strongest negotiating position.

Even assuming a successful sale of Waterstone’s, prospects for the wider HMV business remain dire.

Yesterday’s profit warning was a whopper. From its guidance in March that its results would be “moderately below” market expectations of £45 million, the group now admits profits will crash to just £30 million. That’s less than half the previous year’s £74.2 million even before exceptional items, which will undoubtedly be hefty. The figures look even more miserable when measured against sales that last year topped £2 billion.

This latest warning, which comes less than four weeks before the end of the group’s financial year, does little to inspire confidence in management.

The business will undoubtedly have been hit by the collapse in consumer confidence since Christmas and, to be fair, it is not the only retailer to be forced into a profits alert – Dixons warned last week sales have fallen off a cliff in recent weeks.

The same story of shoppers too scared to spend is expected today when Marks & Spencer updates the market. However, the sheer scale of the HMV warning raises the question of whether management ever grasped the full extent of the group’s problems.

Chief executive Simon Fox has long been a favourite among retail analysts and, until a year or so ago, was lauded for his attempts to turn the business around. He played catch-up on multimedia, moved into live music and put cinemas above some shops.

But he was fighting a losing battle against the likes of Amazon, iTunes and the supermarkets, and the inexorable move online of the entertainment industry.

Even if he hadn’t had to play catch-up, or the business had not been saddled with unsustainable debts (over double the group’s stock market capitalisation), it would have been a big ask for any chief executive.

The relentlessly bad headlines in recent months will also have had a knock-on effect, shaking not only staff morale but customer perceptions.

Now it seems little more than a case of how efficiently the business can be broken up. Famous for its dog-and-gramophone logo, HMV is one of Britain’s best-known retailers and holds a special place in the hearts of music lovers.

The impending demise of the business has sparked countless misty-eyed teenage memories of Saturdays spent browsing through vinyl at its record shops.

But HMV no longer has a place in the high street. And, as retailers from CA to Woolworths have discovered, nostalgia doesn’t fill the tills.

Fiona Walsh writes for the Guardianin London