Shares in HMV were down on the FTSE All Share in afternoon trading after the retailer reported falling sales over Christmas and said that it may breach its April covenant test under its banking facility.

The group said that like for like sales at its British and Irish HMV outlets declined 13.6 per cent in the five weeks to 1 January 2011l, while total sales declined 11.9 per cent.

Internationally HMV like for like sales fell 8.9 per cent and total sales declined 10.2 per cent.

The group's Waterstone's stores reported a fall in like for like and total sales of 0.4 per cent.

HMV reiterated that the Christmas trading period had been "significantly undermined" by the heavy snowfall in December. The group also said that an expected recovery in first half like for like sales had failed to appear thanks to weak entertainment markets.

The group said it was taking "aggressive action" to reduce its cost base, by closing down 60 stores across Britain over the coming year and by identifying £10 million in cost savings per annum.

HMV said that the difficult conditions meant that it expected full year pre-tax profit to be at the "lower end of the current range of market expectations" and that compliance with its banking facility "will be tight".

Simon Fox, Chief Executive of HMV, 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."

By 13:35 shares in HMV were down 19.23 per cent on the FTSE All Share to 26.25 pence per share.