Gymshark Profits Take A Dive Despite Strong U.S. Sales Growth

Profits at U.K. active and sportswear brand Gymshark fell by over a third for the year to July 2022, despite soaring sales in the U.S.

While overall sales were up, with Gymshark reporting a 21% rise in revenues to $605.3 million during the year, compared to $502.1 million in 2021, gross profit margin dropped to 65%. That’s down from 70% in the previous year.

The company said that the business was “affected by the general economic environment” in announcing its latest figures.

And profit before tax stood at $34.7 million, 39% lower than the $56.7 million posted in 2021. The company said that the decrease was caused by increased discounting and one-off costs with setting up the U.S. distribution centres and its store debut with the opening of its Regent Street, London flagship opening last Fall.

Restructuring costs of $2.7 million also contributed to the falling profits, which saw the business layoff 65 staff at its Denver, Co. headquarters in the U.S. in January this year.

The company said of that move: “We are taking this move purely for commercial reasons to centralise our operations and continue to safeguard the future of the business.”

Last year the company reported that U.S. sales were soaring and were likely to account for half of all international sales.

Founded in 2012 by British entrepreneur Ben Francis from the bedroom of his parent’s home, the company is now valued at over $1.3 billion following stellar sales increases, highly successful trading and brand enhancement during the pandemic, and the acquisition of around a fifth of the business by investor General Atlantic.

Gymshark currently ships to more than 180 countries and has more than five million Instagram followers.

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A Gymshark spokesman told U.K. fashion publication Drapers: “Apparel businesses have been hit by rising input costs in their supply chains, whether from rising raw materials, fuel and labor costs or increased freight and logistics costs.

“The consumer has had more opportunities to apply discretionary spending to entertainment and travel, but inflation and rising costs also affect spending. So, yes, there have been challenges, and it would have been tempting to hold on to the money in the bank.”

The spokesperson said that the company “refused to be swayed by macro-economic conditions and so doubled down on investment”, whether in the international markets or in opening its first-ever permanent flagship store on Regent Street.

Boss Francis acknowledged that shifting from an online only retailer was a gamble and said that the company’s ethos is to “test and learn”, so his view is that if things need to change, then the company would adapt.

“If you come back to this store in 12, 18 months and it’s the same then either we’ve knocked it out the park or, more likely, we’ve adapted as we find out what our customers and visitors want from us. If we haven’t changed, then we haven’t listened,” he said ahead of the public store debut.

That store is now outperforming its forecasts, the company said, and “setting us up for further growth in the U.K. Our decision to invest when we did is now paying off globally, as we are seeing double-digit growth in our revenue and trading in line with our group forecast.”