Gear4music proves that buying musical instruments online is the way to go

Oliver Gill
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Stratocaster guitars at the Fender manuf
The iconic Fender brand is popular with Gear4music's customers (Source: Getty)

Shares in Britain's largest online musical instrument retailer fell by two per cent despite posting half-year results that showed it had grown revenue and profit by over 70 per cent.

The numbers

Aim-quoted Gear4music's revenue increased from £12.5m to £21.6m with gross profit rising from £3.3m to £5.8m. The company's gross margin percentage – the percentage of gross profit it generates from sales – was broadly flat at 26.6 per cent.

After generating positive earnings of £216,000 last year, the company's Ebitda jumped to £1.3m this year.

Net cash increased to £908,000 from £613,000

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Net working capital – effectively the amount of cash tied up in a business to run operations – increased from £3.6m to £4.6m.

Why its interesting

Gear4music has grown its bottom line in the last six months by increasing its top line. This has been done while managing to control its cost base. Gross margins remaining broadly flat means that it has simply sold more units and made the same profit on each sale.

Often when growing through sales, companies must increase how much cash is absorbed in the business, their working capital base. While Gear4music's working capital has increased by £1m, the growth is proportionally not nearly as large as the rise in sales.

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The comparatively uneventful share price movement is probably a product of the fact that the York-based company's equity value has increased markedly since the summer.

Gear4music - a steady year until July Gear4music - a steady year until July | mobile image

The internet traffic statistics are telling. While the number of visitors to Gear4music's website has increased by a quarter, the sales conversation rate of these users has increased from 1.79 per cent to 2.38 per cent. The company has also increased its marketing footprint by growing its email subscriber list database from 325,937 to 601,011 people.

What Gear4music said

Chief exec Andrew Wass said:

Accelerating sales growth into Europe, which represented 40 per cent of our total sales during the last two months of the period, has reinforced our decision to expand our distribution capacity in Europe and further enhance our customer proposition.

To underpin our strong growth and physical geographic expansion, we are pleased to announce that our software development team will be brought in-house and, with further recruitment planned, expanded even faster to ensure we continue to build a market leading e-commerce platform.

Whilst we continue to invest to grow the business it is pleasing to have generated significant profits during the last six months, when historically we’ve produced the majority of our profits during the second half of the year.

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