Year-to-March 2021 EBITDA (earnings before interest, taxation, depreciation and amortisation) is now expected to be ‘not less than £19 million’, ahead of current market expectations and up from £7.8 million in 2020.
A terrific final quarter meant annual sales and gross margin came in higher than analysts were forecasting.
MUSIC TO INVESTORS’ EARS
During a transformational year for the York-headquartered business, total sales shot up 31% to £157.5 million.
Progressive Equity Research analyst David Jeary explained this growth reflects the benefits of Gear4music’s ‘online model against the background of Covid 19 and its knock-on impacts on the traditional store-based retail channel and a significant increase in the number of people working from home’.
With professional musicians and beginners alike spending on instruments and music equipment to alleviate lockdown boredom, UK sales were up 27% to £78.7 million last year and Europe and Rest of the World sales rose 35% to £78.8 million.
A series of upgrades have sent shares in Gear4music to record highs, although they’ve been treading water in 2021 to date as investors consider the impact of tough Covid comparatives on the near-term growth rate.
As recently as February, the company upgraded full year 2021 EBITDA guidance from ‘not less than £16.5 million’ to ‘not less than £18.2 million’, citing continued strong trading in the calendar year to date with both its UK and European operations performing well post Brexit.
Gear4Music sells own-brand musical instruments and music equipment alongside premium third-party brands including Fender, Yamaha and Roland. The presence of own brands provides competitor differentiation, a broader choice for customers at different price points while also providing Gear4Music with higher margins than third-party branded products.
‘Further improvements in gross margins have driven our profits to record levels,’ enthused CEO Andrew Wass (pictured), ‘amplified by the previously reported exceptional sales growth and marketing efficiencies which were driven by COVID-19 lockdowns, particularly evident during Q1 FY21.’
SOUNDING A NOTE OF CAUTION
While pleased with trading in the new financial year to date, the online retailer is now lapping demanding lockdown-induced comparatives and remains mindful of the ongoing global pandemic and operational challenges posed by Brexit.
Having swung into a year-end net cash position, Gear4music has also signed a new £35 million three-year Revolving Credit Facility (RCF) with HSBC which Wass insists ‘will help us to accelerate our longer-term ambitions’.
N+1 Singer’s retail guru Matthew McEachran commented: ‘While early days, Gear4music is pleased with initial trading in Q1 FY22 too, against the toughest comparatives of the year (lock-down 1.0).
‘The growth strategy now also has a number of new and incremental elements to it, including M&A, which look set to contribute positively within 12 months. Alongside growing confidence that the core margin and efficiency gains from 2020 can largely be retained, prospects look bright.’