Shares in York-based online musical instrument-seller Gear4music.com (G4M:AIM) fall by half on Friday to their lowest level since 2016 after the company reduced its full-year earnings estimate.
As of mid-morning the stock is down 50% to 255p as the firm lowers its forecast for earnings before interest, taxation, depreciation and amortisation (EBITDA) for the year to February 2019 to ‘slightly below FY18 levels’.
Based on previous guidance analysts had pencilled in EBITDA of £4m for the year to February compared with EBITDA of £3.5m in the year to last February.
SALES BEAT ESTIMATES (BUT ALSO CAPACITY)
The reason for the cut to forecasts is that UK sales from Black Friday to Christmas were so strong that they completely overwhelmed the York distribution centre.
This meant that G4M couldn’t cater for all the orders customers were putting through its site so it didn’t get the volume of sales it needed to offset the lower margin it was making.
Sales growth in the UK was 41% from September to December compared with 36% in the six months from March to August.
Sales growth in Europe was 47% from September to December compared with 39% in the previous six months and fortunately there was no problem supplying customers from its German and Swedish distribution centres.
BETTER MANAGEMENT OF ORDERS AND EXPECTATIONS
The company says it is already working on plans to expand its distribution capacity ahead of this year’s peak trading period and is confident it will be ready by the autumn.
G4M isn’t the only fast-growing online business to have disappointed investors in recent months.
Fashion retailer ASOS (ASC:AIM) shocked the market last month when it cut its full year sales and margin targets after a disappointing Black Friday campaign.
Sales at ASOS were in line with estimates in September and October and although November was a record month it failed to meet the market and the company’s bullish expectations.
In November fast-food delivery group Just Eat (JE.) reported better than expected sales but like G4M lowered its EBITDA guidance, in this case due to increased investment in its overseas platform.
Shares in Just Eat lost more than 25% of their value from August to December last year prompting US investor Cat Rock Capital to demand changes to its financial targets and board pay.
