Share price drop for music retailer after profits hit bum note

A second profit warning by Gear4Music spooked shareholders, causing its share price to plunge 16% when the market opened.

The impact of capacity problems at the music retailer’s warehouse before Christmas have badly hit its profitability.

In January it warned that its EBITDA – a measure of operational profitability – would be slightly below the previous year’s level of £3.5m.

But this morning the York-based business reduced that further to “not less than £2m” because of the additional distribution costs, some short-term courier cost inflation and a clean-up of overstocked and slower moving inventory.

At 9.05am, Gear4Music’s shares had recovered most of their early drop and were trading down 5% at 204p.

The news continued a difficult year for the business, which listed on the Alternative Investment Market in 2015.

Before this morning’s fall, the retailer had lost more than 70% of its value since June – wiping £110m off the company’s market cap.

However the business remains confident that it is in a good position to overcome its problems.

It said: “Despite the challenges of financial year 2019, the board remains confident the Group will continue to quickly grow revenues and return to more profitable growth in the new financial year.”