- Results beat downgraded estimates
- Company sees stronger growth in second half
- Acquisition has opened up £2.7 billion market
Shares in lately-unloved Gear4music (G4M:AIM) gained 2.9% to 180p after the online musical instruments retailer’s annual results came in slightly ahead of the guidance provided with a profit warning in April.
Earnings before interest, tax, depreciation and amortisation (EBITDA) was some £200,000 better than feared at £11.2 million.
And the York-headquartered keyboards-to-guitars seller also sounded bullish in the face of inflationary pressures and the squeeze on discretionary spending, with management claiming various initiatives and cost management efforts would help offset a weaker consumer outlook.
BIGGER BUSINESS POST-PANDEMIC
Results for the year to March 2022 paled in comparison to a Covid-boosted full year 2021, showing a 6% decline in sales to £147.6 million and a 66% pre-tax profit drop to £5 million.
However, sales and pre-tax profits were up 23% and 61% respectively on the pre-pandemic year to March 2020.
There was also relief as Gear4music assured it continues to trade in line with market expectations for the new financial year - consensus calls for sales of £163.9 million and EBITDA of £11.9 million - with management remaining confident in the company’s ‘medium and long-term profitable growth strategy’.
Chief executive Andrew Wass explained: ‘During full year 2021, Gear4music was reportedly the world’s fastest growing large online retailer of musical instruments and music equipment, being uniquely positioned to serve customers during Covid lockdowns.’
As previously reported, ‘this meant our full year 2021 financial results were exceptional, and comparing full year 2022 against full year 2020 pre-pandemic levels provides a better indication of the progress the business has made.’
STRONG PIPELINE
Wass added that Gear4music, which sells own-brand instruments and equipment alongside premium third-party brands such as Fender, Yamaha and Roland, has a ‘strong pipeline of growth orientated projects due to be deployed during full year 2023, including the launch of AV.com into Europe and our second-hand platform, alongside multiple new product releases, including from the recently acquired Premier brand which celebrates its 100th anniversary.’
Weaker consumer confidence is likely to ‘continue impacting our progress during the first half,’ said Wass, ‘although alongside careful overhead cost management we believe our growth initiatives will help offset these headwinds and provide opportunities for stronger growth during the second half.’
CONCERTED GROWTH PUSH
Though ecommerce’s share of total UK retail has declined following the lifting of pandemic restrictions, Investec sees potential for a ‘significant re-rating’ for Gear4music when investor confidence returns.
The broker argues Gear4music has ‘a number of drivers for growth, with a nascent European business, its new audio-visual specialist site (av.com) and a pre-owned offering that is expected to launch towards the end of the calendar year.’
Progressive Equity Research analyst David Jeary pointed out that Gear4music’s acquisition of AV Distribution and the AV.com domain has opened up a £2.7 billion addressable European market in home audio visual products for the company.
‘The development of the business since acquisition has focused on the product offer, logistics and re-platforming AV.com onto Gear4music’s proprietary platform,’ enthused Jeary, adding ‘there will be a concerted push into Europe in full year 2023.’
