- Trading momentum has picked up
- Relief as Gear4music maintains guidance
- Customer proposition improvements are paying off
Shares in lately-unloved Gear4music (G4M:AIM) rallied 5.7% to 101.5p after the online musical instruments-to-equipment retailer highlighted a ‘consistent improvement in trading momentum’ over the last two months and said it is well prepared for the Christmas selling season.
There was also relief as the York-headquartered company maintained guidance for the year to March 2023 despite the cost of living squeeze.
Against a tough backdrop for retailers, consensus is calling for a plunge in pre-tax profits from £5 million to £1.1 million on sales of £155.1 million.
LURCH INTO LOSS
Gear4music swung from pre-tax profits of £1.93 million to pre-tax losses of £1 million in the half to September 2022, on revenue up 2% to £66.3 million as the company grappled with cost inflation, falling consumer confidence due to the cost-of-living crisis and an unhelpful summer heatwave.
Results also suffered as Gear4music, which has returned to its normal second half weighting post-Covid, lapped the last of the pandemic-inflated figures in the first quarter of full year 2022.
Investors were heartened as Gear4music, which sells own-brand instruments alongside premium third party brands including Fender, Yamaha and Roland, said trading momentum and margins have improved in the last two months, helped by projects to improve the customer proposition.
And while website user numbers were down in the half, an increased mix of more committed prospective buyers resulted in both a higher conversion rate at 4.9%, and a 19% rise in the average order value (AOV) to £151 thanks to price increases and the lower proportion of lower priced own-brand sales in the mix.
WHAT’S CEO ANDREW WASS SAYING?
‘Whilst we have adapted to the challenges of the last six months, we have also remained focused on our longer-term growth strategy, delivering a wide range of customer centric improvements throughout the business,’ commented CEO Andrew Wass (pictured).
‘Progress has included several website upgrades, such as the ability for customers to create their own customised audio packages and cables, extending evening cut-off times for next day delivery, improving our consumer finance proposition, and upgrading our digital downloads sales platform.’
ANALYSTS’ VIEWS
Singer Capital Market’s Matthew McEachran said Gear4music delivered ‘a number of key web projects in the first half, and is on track to deploy other growth-oriented initiatives over the next six-to-12 months’.
And with trading momentum ‘having improved ahead of peak, and stock/net debt now reducing, this update has the potential to support some re-rating’ of the shares, he insisted. ‘Today’s news will reassure and, for those taking a contrarian or longer term view, our target price remains unchanged at 225p.’
Meanwhile, Progressive Equity Research number cruncher David Jeary commented: ‘The improved second half trading momentum highlighted in the AGM statement has pleasingly continued into November, with the company reiterating confidence that the full year 2023 outturn will be in line with consensus market expectations’.
Jeary added: ‘Future platform developments will focus not only on enhancements to customer service and experience, but also on evolution of the platform to support multiple channels and verticals between suppliers and customers.’
