Fender logo on electric guitar
Gear4Music swung from losses of £400,000 to profits of £600,000 thanks to cost cutting and margin gains / Image source: Adobe
  • Sales down 5% last year
  • Net debt halved, gross margins up
  • Optimistic of profitable growth

Shares in Gear4music (G4M:AIM) rallied 10% to 147.5p after the online musical instrument seller said it was ‘optimistic’ about its prospects for further profitable growth during full year 2025 having implemented a refreshed growth strategy.

While the electric guitar, drum kit and piano purveyor’s results for the year ended 31 March 2024 showed a 5% drop in revenue to £144.4 million, this reflected a deliberate strategy to prioritise and protect margins in a weak consumer environment.

HITTING THE RIGHT NOTES

Gear4Music, which sells own-brand musical instruments and equipment alongside premium third-party brands including Fender, Yamaha and Roland, swung from losses of £400,000 to a pre-tax profit of £600,000 last year with the help of cost-cutting and a 160 basis-point uptick in gross margins to 27.3%.

The York-based company drummed up a 34% rise in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to £9.9 million, while net debt halved year-on-year, reducing from £14.5 million to a better-than-expected £7.3 million.

Investors were also heartened to hear Gear4music’s recent foray into the second-hand market was already demonstrating ‘strong growth potential’.

WHAT DID THE CEO SAY?

Andrew Wass, who will soon move from the role of chief executive to executive chair and hand over the baton to Gareth Bevan, commented: ‘Having delivered the key objectives we set ourselves at the beginning of full year 2024, the group is well positioned to relaunch its profitable growth strategy for full year 2025. This will focus on expanding sales verticals and channels to market whilst further enhancing and leveraging our unique bespoke e-commerce platform and product offering.’

Wass added: ‘International revenue growth faced some localised challenges in full year 2024. However, the board is confident that, through our ongoing actions and new initiatives such as our second-hand proposition, European sales are set to start recovering in full year 2025.’

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THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, said: ‘Gear4music has been singing the wrong notes for investors in recent years, joining the brigade of companies suffering from a post-pandemic growth splutter.

‘While sales dipped in its latest results, there was an improvement in earnings, helped by margin gains and cost base reductions. That’s put the company on a stronger footing and investors raced to buy the shares in response, a big change of fortunes given the stock has been trading at a bombed-out level for a couple of years.’

Mould continued: ‘This shift in fortunes coincides with a changing of the guard, with some directors leaving and others switching roles. It appears that the results are strong enough to stick Gear4music on the list of turnaround candidates so don’t be surprised to see more people singing its praises going forward. That’s as long as the latest stroke of good luck is not a one-off.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 25 Jun 2024