Gear4music lowers revenue expectations as it focuses on profitability

Musical instrument and equipment online retailer Gear4music reported a 6% fall in total revenues in its first half on Tuesday, to £63.6m, although it adjusted its full-year revenue expectations downward.

The AIM-traded firm said its focus on prioritising gross margins saw a significant improvement of 80 basis points, however, resulting in a gross margin of 27.1%.

It said its deliberate emphasis on cost reduction initiatives paid off, with £4m in annualised cash savings achieved during the six months ended 30 September, though accompanied by a one-off exceptional cost of £0.5m.

Gear4music reduced its net debt to £18.1m, representing a £3.7m decrease compared to the same point last year.

The company’s second-hand system also showed promise, particularly following its European launch.

As Gear4music entered its seasonal peak trading period, it remained focused on efficiency and margin improvements.

Looking ahead, Gear4music said that while profit expectations remained unchanged, it adjusted its revenue expectation for the year to £144m to reflect sales run rates and its commitment to prioritising profits over growth.

That adjustment was offset by increased gross margins and lower costs, contributing to higher overall profit margins.

As a result, the full-year adjusted underlying profit outlook remained in line with current consensus market expectations.

Furthermore, Gear4music said it expected further net debt and on-hand inventory reductions by 31 March next year.

“We are pleased to have made good progress during the period against our strategic objectives of increasing gross margins, reducing our cost base, and further enhancing our customer proposition with the launch of our second-hand system in Europe,” said chief executive officer Andrew Wass.

“Although consumer demand has remained subdued this year due to the weaker environment, our first-half revenues were 27% higher than our pre-Covid 2020 first-half revenues, and we remain confident in our long-term growth strategy.”

Wass said the “decisive actions” taken by the firm would ensure it could return to more robust profitable growth by the next financial year as it leveraged efficiencies driven by artificial intelligence, built upon its platform for growth, and diversified its channels to market.

“We are well prepared for our seasonal peak trading period with a range of recently developed great value music products, and we look forward to providing a further trading update after Christmas on 18 January.”

At 1128 GMT, shares in Gear4music Holdings were down 5% at 114p.

Reporting by Josh White for Sharecast.com.