Musical retailer in tune with margins target
Decision over sales focus pays off for Gear4music
MUSICAL INSTRUMENTS retailer Gear4music said it has achieved its primary objective of “materially” improving gross margins in its first half.
The York-based firm, which is the UK’s biggest online retailer of musical instruments and music equipment, said it did this by cutting out less profitable sales and focusing on higher margin products.
In the six months to September 30, UK sales rose 3 per cent while sales to Continental Europe and the rest of the world shot up 33 per cent, meaning that total sales rose 16 per cent to £49.4m.
The firm said gross profit rose 29 per cent to £12.4m.
Gear4music’s chief executive Andrew Wass said: “We have restored our gross margins to 2018 levels whilst at the same time continuing to grow our revenues and taking market share.
“International sales growth continues to be strong, and whilst the UK market remains highly competitive, we have returned to a more profitable margin structure and believe that this is the right strategy from which to grow our revenues going forward.”
He said the firm’s warehousing and infrastructure teams have worked “tirelessly” during the year to ensure the firm has a robust logistics operation in place ahead of the peak pre-Christmas, second half trading period.
“We are confident that we now have the capacity and efficiency required to make the most of the opportunities available to us,” he added.
“Our re-focused growth strategy is now in place and we are confident that the business is effectively configured to achieve a sustainable level of profitable growth.
“As such, we continue to trade in line with our full-year EBITDA expectations as we head towards our seasonal peak.”
Zoe Mills, retail analyst at GlobalData, said: “After multiple years of domestic success, Gear4music has hit a bum note in its most recent first half results as UK revenue grew by just 3 per cent to reach £24.8m as low consumer confidence and the competitive nature of the musical instrument market hindered sales.
HIGH NOTES:
“Despite this, the York-based company has made strides to improve its profit performance increasing gross profit margin from 22.7 per in the first half last year to 25.2 per cent this year, culling less profitable items and placing greater focus on higher margin products.”
Ms Mills said the improvement in profit and the return of gross margin to last year’s levels has ensured a marked improvement in the group’s share price.
The shares closed the day up 15 per cent at 232.5p.
Ms Mills added: “Revenue growth for the group has halved for the period versus last year, however, its international business has achieved more consistent growth, with international sales reaching £24.6m in the first half, now accounting for almost half of group revenue.”
She said that Gear4music’s expansion of its international proposition bodes well for the future given the lull in confidence in the UK retail market and will enable the musical instrument specialist to capitalise on growth opportunities away from home.
“However, given the strain that higher volumes during peak periods such as Black Friday and Christmas put on its logistics operations last year, it is yet to be seen if its infrastructure is now robust enough to capitalise on these retail occasions. Further improvements to operational infrastructure may be needed to aid its international expansion,” she concluded.
Gear4music will report interim results for the six months to September 30 on November 12.
In June, the company reported a £600,000 loss.
At the time it vowed to implement what it called “swift strategic and operational changes” after encountering a number of operational and commercial issues amid a challenging retail environment.
Gear4music’s full-year results to March 31 showed sales growth of 48 per cent to £118m.
We have returned to a more profitable margin structure. Andrew Wass, chief executive of Gear4music