Gear4Music issues warning despite 41% sales growth

Gear4Music has issued a warning on profit for 2019 saying it would be “slightly below” last year’s results.

The warning comes against the backdrop of a 41% year-on-year sales growth, which has seen sales rise to £48.7m. The group also announced that UK sales had risen by 36% to £25.5m, with sale in the rest of the world rising by 47% to £23.2m. Gear4Music said “significant customer demand” had led to the uptick in sales, peaking during the trading period between Black Friday and Christmas.

Gear4Music said further sales growth “in excess of expectations” was “constrained” by the capacity of its York distribution centre.

Gear4music’s CEO, Andrew Wass, said: “We have seen high levels of consumer demand alongside positive margin momentum, but sales growth has been constrained by our UK logistics operation reaching maximum capacity during our peak trading period between Black Friday and Christmas.

“This capacity limitation means that sales growth during the Period has not fully compensated for the lower product margins as we hoped. We are already working on plans to further expand our UK distribution capacity ahead of our peak trading period next year and we are confident that this can be achieved by Autumn 2019.

“During the Period we successfully relocated our Swedish operation into a larger facility, and now have significant capacity headroom at both European locations, supporting the strong consumer demand we are seeing. We expect this high consumer demand and strong sales momentum to continue over the remaining three months of the financial period and into the next financial year.”

He added: “Our focus has been on gaining market share in what has been a highly competitive environment, and in support of this target and following a period of planned investment, margins during the Period began to return towards historical levels. We are confident of further improvements as we progress through FY20.

“We remain confident that our approach of building a larger business as quickly as possible will put us in a strong position, as the market undergoes further consolidation going into FY20 and beyond.

“We will also continue to invest in building scale and improving our customer proposition with planned investment in our logistics, systems, products and websites. We have a clear strategy of targeted expansion and remain confident of the continued long-term growth opportunity alongside an expectation of a return to increasing profitability.”