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Gear4Music looks for profitability after reporting pre-tax loss despite 48% rise in sales

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Gear4Music today reported a pre-tax loss despite a 48% rise in sales in its latest financial year – and said that its focus was now on boosting its profitability. 

The retailer, ranked Top250 in IRUK Top500 research, hit maximum capacity in its York distribution centre over the peak pre-Christmas trading season which restricted its ability to sell enough goods to achieve the scale that it needed in order to be more proftable. It also meant that labour and distribution costs were higher than expected.

Revenue of £118.2m in the 12 months to March 31 was 48% up on the previous year. UK sales of £63.7m were 33% up on last time, while international sales, mostly from Europe, reached £54.5m, up 52%. At the bottom line, after one-off costs of £598m, pre-tax losses came in at £0.6m, down from a pre-tax profit of £1.5m last time. Gross margin of 22.8% –  “well below historical averages” – was down from 25.4% last time. And while website visitor numbers rose by 60% to 27.1m, and conversion rates to 3.40% from 3.25% last time, average order values fell to £117 from £127 last year.

Now the retailer plans to invest more selectively in more profitable inventory while growing its own-brand sales. It is also reviewing its courier relationships and return policies – after courier costs were “noticeably higher”, particularly during the peak trading period, while running more targeted marketing campaigns. Sales growth, it said, was likely to be lower than previously, especially compared to the first half of 2019 – “when gaining market share was prioritised over profitability.” The new strategy, it said, would ensure that profit margins were realigned ahead of peak trading this year, “and help us to operate profitability and sustainably within any retail environment.”

Gear4Music chief executive Andrew Wass said the retailer’s focus in the first half of its current financial year was on improving gross margins and “ensuring a robust operational infrastructure is in place ahead of our peak H2 trading period.” He added: “I am pleased to report these actions are already yielding positive results. We are confident that we have the right strategy, customer proposition, financial reousrces and focus, to overcome the challenges of FY19 and achieve our objectives of maximising customer satisfaction and delivering value to shareholders.”

York-based Gear4Music delivers to more than 190 countries from its international websites, and has distribution centres and showrooms in York, Germany and Sweden.

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