Shares in music and books retailer HMV have plunged after the company warned that the severe weather in the UK over the key Christmas trading period had exacerbated what were already challenging market conditions.

The firm said Christmas sales were down 10 per cent and warned that profits would be at the lower end of forecasts. The announcement sent the company's shares down by as much as 21 per cent.

HMV said that like-for-like sales during the five weeks to 1 January were down 13.6 per cent compared with the same period last year. In a trading statement, the firm also revealed that it was struggling to avoid breaching the terms of a bank loan.

"The board now expects that compliance with the April covenant test under the group's bank facility will be tight and is taking further mitigating actions during the next four months to address this," the company said.

The firm added that it would close about 60 of its UK stores in the coming year as it attempts to further reduce its cost base. It said profits for the year to April would be at the bottom end of the £46m-60m range expected by markets.