musicMagpie shares fall 70% amid profit warning

Shares of Stockport-based musicMagpie — which allows consumers to buy, rent and sell refurbished consumer technology — fell about 70% on Monday after it published a trading update and outlook saying its profitability for the year to November 30, 2022, will be below its previous expectations and those of the market.

musicMagpie shares fell to around 8p to give the firm a current stock market value of only £8.5 million. The firm’s shares have fallen about 95% over the past year.

The company said: “In the group’s interim results announced on 27 July 2022 it noted that, despite the current challenging macroeconomic environment, it expected an improved trading performance in the second half of the financial year. 

“Whilst it still expects that second half profitability will be a substantial improvement on the first half, the performance of consumer technology (which represents around two thirds of group revenue) has been weaker than anticipated and margin pressures have persisted.

“Cautious consumer behaviour in August and September to date has seen slower growth of outright sales on the musicMagpie store, which the expansion of other sales channels, including the positive launch on Back Market in May 2022, has not been able to fully offset. 

“The group’s successful and growing device rental service is also reducing outright sales as customers choose to rent instead of making outright purchases. 

“Whilst tempering results for the current financial year, rentals are significantly more profitable to the group over the life of the device and have strategic importance given they provide recurring revenue and profitability growth in future years.

“Historically, October and November have been material contributors to overall group performance, with heightened activity and consumer interest around the Black Friday sales period, in particular. 

“Whilst the group continues to expect that Black Friday will prove to be a peak trading period, it now believes it is prudent to reduce its expectations for contribution from this period due to the worsening economic outlook and increasing cost of living pressures on the UK consumer.

“Accordingly, the group now expects that revenue generated in the second half will show lower growth over the first half than previously expected and that profitability for the year to 30 November 2022 will be below its previous expectations and those of the market.

“The group continues to have a strong balance sheet and had net debt of £7.5m at close of business on 31 August 2022.

“A new £30m committed revolving credit facility was entered into on 26 July 2022 to allow the group to continue to invest in the rental offering and the SMARTdrop kiosk roll-out with ASDA, which remains on track to complete by the end of the financial year.

“Looking further ahead, the board remains confident in the group’s strategy and in its medium-term growth prospects, underpinned by the growing and differentiated rental proposition.”