Shares of Gear4music tumble as the retailer crashes at a loss after high costs curb sales growth
- Britain’s largest online music equipment retailer declared a pre-tax loss of £0.4m
- Cost-of-living pressures in the UK depressed demand for consumer durables
- Gross margins declined after the company reduced inventory and incurred higher costs
Gear4music suffered a loss last year due to more challenging domestic economic conditions and additional costs from reducing inventory levels.
Britain’s largest online music store posted a pre-tax loss of £400,000 for the 12 months ended March, compared to a profit of £5 million last year.
Total sales grew 3 per cent to £152 million, despite cost-of-living pressures in the UK hurting demand for sustainable consumer products.
Outcome: Gear4music declared a £0.4m pre-tax loss for the 12 months ending March due to tougher economic conditions and additional costs from reducing stock levels
The company had previously blamed weaker domestic trade on Royal Mail strikes that delayed deliveries over the Christmas period, warm weather and the absence of Covid-related restrictions.
Sales were also impacted by the company’s own-brand products which faced stiffer competition from Far Eastern manufacturers selling in Europe through Amazon.
Due to falling demand, Gear4music began reducing stock, which it had built up last year for ‘precautionary and opportunistic reasons’, through price cuts and changing order levels.
Combined with higher energy, labor and card processing costs, this contributed to gross margins falling 220 basis points to 25.7 percent.
Andrew Wass, chief executive of Gear4music, commented: “Market conditions have remained challenging… and we are taking the appropriate and necessary steps to ensure our business is properly configured, resourced and strategically positioned for success in the long-term.’
After the publication of the annual figures, Gear4music shares fell 6.8 percent, or 7 pence, to 95.5 pence just before markets closed on Tuesday afternoon.
Gear4music was one of the most notable winners of the lockdown retail trade as housebound consumers sought to keep themselves entertained by improving their musical skills.
Purchases of guitars, digital keyboards and home recording equipment all grew significantly.
To capitalize on the boom, the company bought percussion instrument maker Premier Music, whose drums have been played by the likes of Sir Ringo Starr, Keith Moon and Phil Collins.
It also acquired audiovisual equipment retailer AV Online and opened three new distribution centers in Ireland and Spain to strengthen its presence in mainland Europe.
Yet trade began to wither as Britain’s departure from the European Union disrupted shipping and people began spending more time outside after Covid-related curbs ended.
In the past financial year, Gear4music’s number of active customers fell 6 percent to 865,000, while website visitors fell by 2.3 million to 26.5 million.
While the group’s customer base, turnover and profits remain above pre-Covid levels, the share price is down more than 90 per cent from its high of over £10 two years ago.
Chairman Keith Ford said: “Customer demand in our markets remains volatile and difficult to predict, due to the ongoing impact of geopolitical and macroeconomic uncertainties affecting consumer confidence across Europe.”