Gymshark: Profits continue to fall despite surge in sales

Profits continued to fall at Gymshark during its latest financial year despite its sales surging past £550m, newly-filed documents have revealed.

The Solihull-headquartered business posted pre-tax profits of £13m for the 12 months to July 31, 2023, down from £27.8m.

Gymshark’s profits declined for the second successive year following its first-ever fall during its previous financial year.

However, the company’s EBITDA, excluding exceptional costs, increased from £39.9m to £45.3m. Gymshark said it focuses more on that measure “due to its proxy for underlying trading performance”.

The new accounts also show Gymshark’s revenue increased from £484.4m to £556.2m during the year.

The company’s distribution costs fell from £122.7m to £114.2m but administrative costs increased from £160.5m to £192.9m.

A statement signed off by the board said: “During the last financial year, apparel businesses have continued to face rising input costs, including rising raw materials and labour costs.

“However, other costs notably freight began to normalise during the financial year.

“The board continued to monitor these costs closely as well as changes to the macro environment, from a vernal perspective and with regard to conditions in key geographies.

“The consumer has been hit by the general macro-economic climate, with inflation and cost-of-living increases impacting discretionary spending.

“Despite these pressures, the board is pleased to report that the group has continued to grow its sales and improve profitability, and is particularly impressed with the business’s performance during the second half of the financial year.”

Gymshark added: “The overall strategy of the group remains to continue increasing revenues in a profitable and sustainable manner and to create and develop desirable products to its growing consumer base.”

Direct to consumer sales increased from £481.2m to £536.4m while wholesale revenue rose from £1.4m to £7.7m and retail sales grew from £1.7m to £11.9m.

Gymshark’s UK sales went from £88.9m to £111.7m and from £228.3m to £250.4m in the US. In Europe, its revenue increased from £111.5m to £129.4m and rose from £55.6m to £64.5m in the rest of the world.

During the year, the average number of people employed by Gymshark fell from 918 to 853.

In January 2023 the group cut the number of employees in its North America team from around 125 to 40 and close its regional sourcing offices in Honk Kong and Mauritius.

Gymshark was founded by Ben Francis and Lewis Morgan in 2012. In 2020, it was valued at more than £1bn when US private equity firm General Atlantic acquired a 21 per cent stake.

On its financial performance during the year, Gymshark said: “Overall, 2023 was a successful year with net revenue up 15 per cent per annum despite tough economic conditions and declining consumer confidence.

“Our progress was underpinned by the relevance and quality of our product to consumers and the resonance of our brand with the conditioning community and improvements to the efficiency and effectiveness of our operations.

“It was a difficult start to the year with our first quarter impacted by the cost-of-living crisis and weaker execution, particularly in the US market.

“However, we successfully launched our first permanent retail store on Regent Street and immediately saw strong performance.

“Despite the tough start, the Black Friday and Cyber Monday 2022 sales event performed well and momentum built from there.

“Since January 2023, the group has focused on execution, particularly in product, supply chain and the commercial areas of its business, working to improve the effectiveness and efficiency of its operations.

“In the short term this has led to a focus on bettering the way we interact with consumers, increasing levels and relevance of new product whilst reducing historic excess stock.

“This has impacted gross profit which was 60 per cent for 2023 (2022: 65 per cent), but has delivered efficiencies in our supply chain, increased profitability and materially improved our cash flow.”