Proactive Investors - Run By Investors For Investors

Gear4Music swings to loss but says tune is changing in new year

Underlying earnings fell 34% to £2.3mln even though sales grow 48% to £118.2mln
music
While it is early in the piece, Gear4Music said “we are beginning to see positive trends establishing themselves”

Online music shop Gear4Music Holdings PLC (LON:G4M) said it had made “swift strategic and operational changes” to change the tune after slipping to a loss in its past financial year.

Even though the retailer had one extra month, as its year end was moved from 28 February to 31 March, helping sales grow 48% to £118.2mln, underlying earnings (EBITDA) fell 34% to £2.3mln.

READ: Gear4Music hits bum note as trading update implies lower full year earnings

At the statutory level, G4M reported a loss before tax of £0.6mln compared to a £1.5mln profit the previous time.

There was £5.3mln cash at hand at the year-end, up 51% over the past 13 months

G4M had warned of lower underlying profits in January and April due to operational and commercial issues, including its distribution centre in York reaching maximum capacity during the peak trading period between Black Friday and Christmas.

Wass up

Chief executive Andrew Wass hailed the strong revenue growth and significant market share gain throughout the year but acknowledged the internal issues the company had faced and the challenging external retail environment.

“In response we have undertaken a thorough review of all aspects of the business, and are confident that the swift strategic and operational changes being made will significantly reduce the risk of these issues reoccurring in the year ahead,” he said. 

While it is early in the current financial year, he said “we are beginning to see positive trends establishing themselves”.

Shares down

Shares in G4M were down 16% to 195p in early trading on Tuesday, before rallying to 217p by mid-afternoon.

Even though investors were prepared for a bum note thanks to the big warning earlier this year, Russ Mould at AJ Bell said the numbers were still disappointing, which was likely to be due to the pressure on gross margins, references to a highly competitive market and warning over weak consumer confidence.

“Gear4Music has grown rapidly, perhaps a little too fast. Arguably this raised expectations to unsustainable levels and some of the company’s recent issues relate to bumping up against capacity constraints," he said.

“Selling musical instruments and equipment over the internet seems a perfectly reasonable proposition but arguably the only barrier to entry is the strength of the company’s brand."

He said the business needs to avoid any repeats of the failure of its York distribution centre last Christmas.

“These struggles are a reminder that online retailers do not operate free of costs and actually have significant expenses around infrastructure, delivery and returns.

“Management say they are now ready for vital second half trading in the current financial year (encompassing the festive period) and they will have to be if the company is to get back on song.”

-- Adds broker comment --

View full G4M profile View Profile

Gear4Music PLC Timeline

Newswire
September 05 2017

Related Articles

Investment papers and laptop
May 07 2019
The investment firm focuses on providing consultancy services to universities and other research organisations to help them commercialise any intellectual property arising from their research
Interviewees
August 07 2018
The offer values Nash at £98.7mln and DBAY already controls 26.1% of Harvey Nash shares
drone
March 29 2019
RMS is taking action to address the issues at Geocurve and looks forward to “renewed growth in sales to new clients” while it remains "excited by the opportunities at GyroMetric"

© Proactive Investors 2019

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use