Gear4Music Holdings LON:G4M, the York-based, AIM-listed musical instrument retailer published its interim results for the six-month period to the end of September today (19th November).
As previously reported, the company was founded in 2003 and 12-years later it listed on AIM, at an IPO price of 80p. Gear4 has grown to become the UK’s largest retailer of musical instruments and equipment and has an international presence since 2012, selling in 15 languages.
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Gear4 saw total revenues fall 1% year-on-year for the six-month period to end of September to GBP61.7m. On the bright-side, the company saw revenues rise 6% y-o-y in the UK to GBP39.7m but suffered elsewhere with European and Rest of World falling 12% y-o-y which hit the retailer’s underlying gross profit, which fell to GBP16.5m, down 3% y-o-y. Gross margin also fell 40 basis points y-o-y to 26.7%.
Last year management commented on its desire to prioritise gross margins ahead of sales and was targeting gross margins of 27.1% and hoping for gross profits of GBP17m. The company hasn’t quite hit its targets. Profit was GBP17.4m in 2022. Gear4music believes that current consensus market expectations for the year ending 31st March 2025 are revenues of GBP154.7m, EBITDA of GBP11.7m and profit before tax of GBP2.8m.
Marginal improvement for Gear4Music
Earnings were up y-o-y from 2.4m to 2.9m, and saw loss before tax GBP1.2m, better than the GBP1.9m loss it made this time last year. However, EBITDA would have been worse if redundancy costs of GBP500,000 were added.
As reported, the company mainly sells online, but also has a showroom in York as well as Sweden and Germany and sells its own brand of instruments alongside well-known brands including Fende, Yamaha and Roland.
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Management has been undertaking a strategic review to fast-track it back on a path to growth, and Andrew Wass, executive chairman said: “We are pleased to report progress in executing our refreshed growth strategy announced in June 2024, resulting in improvements in our financial performance during FY25 H1. Building on our return to sales growth in FY25 Q2, we have achieved a 5% increase in revenue during FY25 H2 trading to date, following the resolution of the challenges associated with the initial roll-out of our new outsourced AI-based marketing platform.”
David Jeary, an analyst for Progressive Equity Research, was moderately pleased with results. He said: “The move to focus on growing higher-margin revenues is starting to bear fruit, albeit some initiatives are early stage with a modest revenue base. As an example, G4M quantified H1FY25 revenues from its second-hand platform at GBP1.4m, representing a y-o-y increase of 286%. The FY25E turnover target for this revenue stream is GBP4m, with the objective of growing to be GBP10m+ within two years.”
Bearing-down on its costs
The company highlighted the fact that it has been bearing down on its overheads, reducing administration expenses by GBP1m. The company also reduced its net debt y-o-y by GBP3.7m, which at the end of the period was GBP14.4m, despite, said the company, Gear4 building up its inventory ahead of the busy Christmas period.
A big boost for the company was its second-hand sales channel, which Gear4 has been experimenting with. Wass said: “Our second-hand sales platform continued to gain significant traction during FY25 H1, with sales growing by 286% to GBP1.4m in the period. We anticipate sustained strong growth in this area as we expand consumer awareness and our channels to market.”
The company has also seen a rise in its own-brand retailing, with a 67% increase since 2020 in own-brand SKUs (Stock Keeping Units) reducing its other brands marginally with, during the period, own-brand sales accounting for 23.6% of total product sales. This, however, was down 8%, but, given the higher margins that Gear4 gets from its own-brand musical equipment is a potential direction of travel.
Jeary said: “We make no changes to our forecasts in light of G4M expecting the full-year outturn to be in line with market consensus expectations, which it believes to be group revenues of GBP154.7m, EBITDA of GBP11.7m and PBT of GBP2.8m. The group will need further momentum in sales revenue growth across H2 from the current 5% level to meet the top-line consensus figure.”
Gear4 opened trading today at 156.5p and had fallen to 150p by 1030. Over one-year Gear4 is up 30%, and up 9% year-to-date with its share ranging between 114p and 205p. The company has a market capitalisation of GBP32.5m.
The company has made some progress, but there’s still a long way to go. Gear4 is still hitting sour notes and needs to quickly get back in rhythm with the rest of the players. It will be interesting to see how the next six-months go, especially seeing that Gear4’s busy Christmas period is approaching, and all eyes will be on the next trading update at the end of January 2025.
