Profit warning at online retailer as Brexit causes off key performance

Online retailer, Gear4music has issued a profits warning as revenues fall in the first half of the year to 30 September, when compared to the same period in 2021 – which it described as an exceptional year.

The York-based company said it is trading below market expectations, however noted it has seen success when compared to pre-pandemic figures with gross profit up 45% on the six months to 30 September 2019.

Despite the drop in numbers over the last 12 months the business noted that its gross margins remain strong with a half year figure of 28% compared to 28.6% in the same period last year and 25.2% in 2019.

The online retailer which last year benefitted from store-based competitors being adversely impacted by Covid lockdowns and a consumer move to online shopping said that this year website visits had fallen by 11% across the group and that it continued to be impacted by cross border challenges since Brexit in January 2020.

It noted that since the UK left the EU in January 2020, it had seen a drop in European sales that would previously have been fulfilled from its UK distribution centre in York as a result of cross border challenges. However, to resolve these issue the business has opened two new distribution centres in Ireland and Spain to complement its existing footprint in Germany and Sweden, with the new sites expected to be fully operational by the fourth quarter.

Andrew Wass

Gear4music is also in the process of acquiring AV Distribution, which offers significant growth opportunity for the business and is expected to complete in December 2021. This will be followed by the launch of AV.com in January 2022, and should increase the business’ market size.

Commenting on the results, Andrew Wass, chief executive officer said: “I am pleased to report that following the exceptional period of trading during FY21, group financial performance during FY22 H1 was in-line with the board’s expectations, retaining strong margins and achieving significantly improved profitability compared with the more comparable FY20 H1 trading period.

He added that the first quarter sales were stronger than expected, “which provided the basis for the board to upgrade its expectations on 22 June 2021” but noted that “Brexit related supply chain challenges are persisting for longer than we had previously anticipated”.

Wass added: “As our new hubs in Ireland and Spain scale-up to build upon our existing European infrastructure, we are confident that the remaining Brexit related challenges will be resolved by FY22 Q4 and our European customer proposition will be significantly strengthened.

“With the acquisition of AV Distribution Ltd due to complete in December 2021 followed by the launch of AV.com in January 2022, which will significantly increase our addressable market size, alongside multiple planned upgrades to our E-Commerce platform during FY23, we remain confident in our profitable growth strategy.”

The market’s reaction to this morning’s announcement saw Gear4music’s shares open down 21% to a year low of 630p. However this figure is still around three times the size of its pre-pandemic value.

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