Shares in Gear4music (G4M:AIM) slumped 14.4% to 685p on Tuesday after the online musical instruments retailer warned trading in Europe in the third quarter to date has been slower than expected due to ongoing Brexit-related supply chain challenges.
The York-headquartered company is now guiding for EBITDA of ‘not less than £12 million’ for the year to March 2022. This is below recently upgraded consensus market expectations of £14 million, but above the £7.8 million generated in the year before the pandemic.
TOUGH COVID COMPARATIVES
First half results to September 2021 were in line with management’s expectations.
Turnover fell by 8% to £64.7 million and EBITDA weighed in at £4.8 million, down from £8.5 million, as Gear4music lapped tough, Covid-boosted comparatives; store-based competitors were adversely impacted by lockdowns, while online sales surged as people spent more time at home and took up hobbies including music.
First half UK revenue was flat year-on-year, while international revenue fell by 16% amid a drop-off in European orders due to ongoing disruption caused to supply chains and order fulfilment post-Brexit.
Gear4music, which sells own-brand instruments alongside premium third-party brands including Fender, Yamaha and Roland, had upgraded expectations back in June off the back of stronger than expected first quarter sales.
Unfortunately, CEO Andrew Wass (pictured) explained that Brexit-related supply chain challenges are ‘persisting for longer than we had previously anticipated’ and European sales to date in Q3 ‘have been slower than previously expected’.
NEW HUB HOPE
Wass continued: ‘As our new hubs in Ireland and Spain scale-up to build upon our existing European infrastructure, we are confident that the remaining Brexit-related challenges will be resolved by FY22 Q4 and our European customer proposition will be significantly strengthened.’
Despite the short-term supply chain setback, Wass remains upbeat about Gear4music’s long-term prospects, informing Shares that ‘next year will be a big year for us’.
He is keen to trumpet the merits of the recent acquisition of online home cinema-to-HiFi equipment seller AV Distribution, due to complete in December 2021, followed by the launch of AV.com in January 2022, which ‘will significantly increase our addressable market size’. Wass insists the acquisition is ‘the most exciting thing we’ve (Gear4music) done since the IPO in 2015’.
Progressive Equity Research analyst David Jeary believes the potential from the AV acquisition is ‘significant, with Gear4music estimating a European addressable market of £2.7 billion. The competitive landscape is fragmented, with the majority of established competitors being store-based (multi-channel) operators, such as the UK’s Richer Sounds business. There are also no dominant online specialist retailers.’
