Shares in Gear4Music Holdings PLC (LON:G4M) struck a bad chord with investors on Tuesday after it implied its earnings (EBITDA) for the latest full year would be lower than the one before.
In a trading update for the 13 months ended 31 March 2018, the online musical instrument retailer said it expected to report EBITDA of “not less” than £2mln. By contrast, in the 12 months to 28 February 2017, the group had reported EBITDA of £3.6mln.
READ: Gear4Music shares plunge amid 2019 profit warning as UK capacity constrains sales growth
This was also despite sales growth of 36% in the period to £118.3mln, driven by double-digit growth in both the company’s UK and Europe/Rest of World segments.
The potential for lower earnings had been initially highlighted in January when the group said EBITDA for 2019 was expected to be “slightly below” 2018 levels as capacity constraints held back sales growth.
The group had said that the strong uptick in sales had been held back by its distribution centre in York, which reached maximum capacity during the firm’s peak trading period between Black Friday and Christmas.
In somewhat of a silver lining, the firm said that its net debt at the end of the 13-month period was expected to be below previous expectations and that it was “confident” of returning to profitable growth in the new fiscal year.
House broker highlights strong sales but cuts target price saying “building a track record” is key
In a note to clients, G4M’s house broker Peel Hunt highlighted the company’s strong sales growth over the year, however, they cut their target price to 300p from 500p, saying the shares would “find the going tough after a strong run”.
“There is plenty to admire here and the long term looks rosy but building the track record will be the key here before the fence sitters will get involved.”
In lunchtime trading, G4M shares were down 2.3% at 210p.