Gear4music margins struggle through December quarter
By Josh White
Date: Thursday 19 Jan 2023
(Sharecast News) - Gear4music reported an 11% rise in European sales in the December quarter on Thursday, to £23.5m, which it put down to the successful execution of infrastructure investment during 2022 to improve its customer proposition.
The AIM-traded firm said UK revenues were flat at £26m, affected by continued weak consumer sentiment and the consequences of Royal Mail strikes through December.
Gross margins slipped to 25.6%, from 28.4% quarter-on-quarter, which it put down to targeted stock reductions of slower-moving product lines.
The company said its gross profit of £12.7m was 6% lower year-on-year, and 20% higher than the 2020 financial year.
It said improving labour efficiencies and lower marketing costs were "largely offsetting" the lower gross margin.
EBITDA and the reduction in net debt for the full 2023 financial year, meanwhile, were set to be in line with consensus market expectations.
"We are pleased to report that, despite several external challenges, financial performance during our 2023 peak seasonal trading period was in line with the board's expectations," said chief executive officer Andrew Wass.
"UK revenues during December were impacted by Royal Mail strikes and the knock-on disruption of other couriers, which led to longer delivery times and an earlier pre-Christmas cut-off date than we would expect under normal trading conditions."
Wass said a continuing targeted reduction of both on-hand inventory and net debt, combined with a period of weaker consumer sentiment and lower own-brand sales, led to subdued gross margins, although tight control over marketing and labour costs largely compensated for that, with margins set to recover in 2024.
"As we continue to make good progress with new growth orientated projects, we remain confident in our long-term profitable growth strategy, and that the group is appropriately resourced and well placed to make the most of opportunities as they arise."
At 1553 GMT, shares in Gear4music Holdings were down 15.52% at 117p.
Reporting by Josh White for Sharecast.com.
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