Gear4music Regulatory News (G4M)

4 January 2019

Gear4music (Holdings) plc

Trading Update

Gear4music (Holdings) plc ("Gear4music" or "the Group"), the largest UK based online retailer of musical instruments and music equipment, today announces a trading update for the four months from 1 September 2018 to 31 December 2018 (the "Period").

· 41% increase in total sales, up from 36% growth in H1

· Both Own-brand and Other-brand revenues grew by 41% in the period

· Active Customer1 numbers up by 47% to 666,000 at 31 December 2018, compared with 31 December 2017

· Website conversion improved to 3.5%, up from 3.3% in the same period last year

_______________________

1 Active customers are customers of the Group who have purchased item(s) at least once in the last year

Overview

The Group has recorded overall sales growth of 41% for the Period, driven by significant customer demand, delivering strong growth both in the UK as well as Europe and the Rest of the World. Further sales growth in excess of expectations was constrained by our York distribution centre, which reached maximum capacity during the peak trading period between Black Friday and Christmas. Whilst there was an improvement in margins in the Period compared to H1 FY19, these capacity constraints prevented further sales growth compensating for the lower gross margins and, as a result, the Board now expects FY19 EBITDA to be slightly below FY18 levels.

Gear4music's Chief Executive Officer, Andrew Wass, said:

"We are pleased to have delivered strong sales growth of 41% over the last four months, building on the 36% sales growth achieved in the first half of the year. In addition, our strategic initiative to expand in to Europe has shown further good momentum, with sales growth of 47% in the Period, an increase from 39% at the half year.

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.

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."

- Ends -

Enquiries:

About Gear4music.com

Operating from a Head Office in York, and Distribution Centres and showrooms in York, Sweden and Germany, the Group sells own-brand musical instruments and music equipment alongside premium third-party brands including Fender, Yamaha and Roland, to customers ranging from beginners to musical enthusiasts and professionals, in the UK, Europe and, more recently, into the Rest of the World.

Having developed its own e-commerce platform, with multilingual, multicurrency websites delivering to over 190 countries, the Group has rapidly expanded its database and continues to build its overseas presence.

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.