Customers walk past a display inside an HMV shop in London

HMV Group, the UK's biggest entertainment retailer, posted a steeper-than-expected first half loss and warned investors it may be at risk of defaulting on some of its debts as early as next month.

Shares plunged by nearly 40 percent in early London trading to change hands at 2.45 pence each after closing at 4.1 pence Wednesday.

The group said it recorded an operating loss of £24.1m ($40m/€30m) for the 26 weeks ending on 27 October as sales fell 13.5 percent to £288.6m, the company said in a statement published Thursday. Like-for-like sales, the company said, were down 10.2 percent. The total group loss, after taxes, will be in the region of £36m the company said.

"HMV has had a difficult first half. However, the business has started to deliver a number of new initiatives which will help to maximise the seasonal sales opportunity and provide a platform for growth in 2013," said |CEO Trevor Moore. "Additionally, as we trade through this period we will continue to develop further initiatives with our suppliers and I will provide updates at the appropriate time."

Group Finance Director Ian Kenyon told investors Thursday that although key Christmas trading had so far been below expectations the company wasn't considering reducing the number of stores it currently has in operation.

HMV said its net debt had risen to £176.1m in the first half of the year and that, as a result, it was "probable" the company would breach one or more of the covenants linked to its financing in January of next year. It added, however, that it was in "constructive" discussions with its banks with respect to current trading conditions.

The struggling 91-year old retailer sold its 50 percent interest in the ticket selling business Mean Fiddler and its entire MAMA Group holding - which it bought for £46m for only two years ago - to a unit of Lloyds Development capital for around £7.3m. Last spring it sold the famous London Hammersmith Apollo entertainment venue for around £32m in an effort to trim debt and extend the terms of its existing financing.

HMV posted as full year loss of £16.2m in the 2011-2012 financial year and said it would return to profit this year as it transitioned from declining DVD and CD sales into new technology products.