Thin profit isn't always bad news. Gymshark shows how to tell the difference

Sales going up but profit going down is often seen as a sign that a business is being squeezed - chasing turnover at the expense of margin. But sometimes, lower profit actually represents solid commercial health.

Which one’s true for you depends on whether you spent the money in the middle on things that will bring in more sales next year, or on things that won’t.

Let's take Gymshark, for example. We’ll walk through the income statement, top to bottom:

• In FY25, its revenue was £647.3 million, up from £607.3 million in FY24.

• The products themselves cost £244.3 million, leaving £403.0 million of gross profit - a gross margin of 62%, down from 63%.

• Running and growing the business then cost £391.0 million: £130.4 million to distribute products and £260.6 million in administrative costs (for context, that's 97p of every £1 of gross profit).

• Add £0.7 million of other income and Gymshark was left with an operating profit of £12.7 million.

• After £5.9 million of net interest, pre-tax profit was £6.9 million, down from £11.9 million.

(All figures from the consolidated income statement, and I’ve rounded to one decimal place so totals may differ by £0.1 million.)

Given headline revenue was £647.3 million, is £6.9 million in pre-tax profit a weakness? If you’d asked in January 2025, yeah, possibly. But halfway through its financial year, Gymshark’s board decided that the business needed to stop competing on price. Their decision was about brand longevity which turned its thin profit from being a warning sign into being a deliberate, calculated bet.

It’s this difference in “thin pre-tax profit OK” vs “thin pre-tax profit bad” that’s the transferable lesson for any brand-led business.

Two kinds of thin profit

At the simplest level, thin profit happens due to money being spent on one of two things.

The first is cost centres. These are one-way spends that don’t generate any/enough returns so they do zilch, zip nada to put money in the bank. More often than not, they actually leave you worse off.

Three common suspects:

• A price cut that goes out to everyone - new customers who only bought because of a discount, and existing customers who’d have paid full price.

• Ads shown again and again to people who’ve already bought, or who didn’t click the first three times.

• Stock written down because it didn’t sell - plus the warehouse, handling and content costs that went with it.

The second is value creators. This is money spent on something the business counts as an asset - something that has a direct line, or a correlation to, more sales. Said with the caveat that these are profitable sales.

Gymshark’s thin pre-tax profit in FY25 was the result of both cost centres and value creators. As mentioned, the year was split into two (pre board decision, post board decision) but came through on the single income statement.

The cost centres

Gross margin fell from 63% to 62%, which the accounts put down to “the increased level of discounting in the first half of FY25”. i.e. the period spanning August 2024 to January 2025. This half of the year included an outlet in Bicester Village, which was dressed-up as being an “off-price shopping experience” but that’s just a nice way of saying discount outlet. Black Friday also fell into this time period, with discounts of up to 70% off.

On top of that, £10.5 million of FY25’s costs were the one-way kind:

• £5.2 million on the restructure that came with the change of strategy. And that number is people's jobs - the restructure put 296 roles at risk. Whatever it does for the accounts, it can never be chalked up as a good outcome in a human-to-human sense.

• £3.7 million writing down technology - noted as “impairment of intangible assets is as a result of technological obsolescence”.

• £1.7 million writing down the Stratford store - no more detail was given, it was just explained as “the current year impairment relates to the Stratford retail store”.

(Note: These add up to £10.6 million because each is rounded; the filed total is £10,473K, or £10.5 million.)

And there was also something propping this number up. Pre-tax profit includes a £7.1 million currency gain, mostly from revaluing money that Gymshark’s UK and US businesses owed each other. Whether this was luck or smart cash management… I have no idea. But what I do know is that without this currency gain, FY25 would have been a £0.3 million pre-tax loss.

The value creators

In 2013, Gymshark’s founders famously emptied the business bank account to book a stand at BodyPower, the fitness expo at the NEC. Sales went from £300 per day to £30,000 in 30 minutes. Then in September 2024, its Lift NYC event pulled in 7,500 people and $600,000 of online sales (about £450,000).

These are essentially the same move, albeit at different scales. Events are often viewed as throwing money into the wind and seeing what happens. But as a community-driven brand, they’ve been central to Gymshark’s commercial success.

Gymshark already knows that it makes money when it puts customers in the same space as its products. So when the board pulled back from discounting, it went back to that playbook. In its own words: “The new strategy saw a pull-back from competing on price and value, instead focussing on deeper storytelling and building real reasons to believe in Gymshark products”. In practice, that meant new stores in White City, Amsterdam and Manchester, and more events.

Are these the moves of a business that’s now on track with a “good” kind of thin profit? Here are the four questions I’d be asking of the overall strategy and the data/money - of Gymshark, and of your own numbers.

1. Is the cash being spent on an asset?

Where to look: investing activities in the cash flow statement.

Per its cash flow statement, Gymshark put £32.4 million into stores, equipment and systems, up from £16.8 million. The accounts say the store spend went mainly into funding new retail stores.

These are things that should enable stronger operations, and therefore they’re assets for increasing revenue, efficiencies, and therefore overall profitability. The flip side is the commitment that comes with these costs. e.g. £124.4 million in future lease payments. The risk is that Stratford suggests that not every store pays it back.

But the reason I’ve put this into the value creation bucket is that Gymshark is hedging the downside.

Only £16.7 million of those lease payments are due in the next year, which is about 2.6% of current revenue. It's going to review the trading performance and customer feedback of its newer stores, before pushing a wider roll out. Where it can, it lets partners carry more of the risk - Dubai runs via a franchise partner. And it has a £120 million credit facility which was repaid in full as of 31 July 2025, so it has some flex to absorb a miss.

2. Which sales lines went up because of it?

Where to look: the revenue split by channel.

Store sales rose from £15.6 million to £27.5 million, a strong lift of 76%. That said, online was up £23.3 million and it's still 94.6% of sales versus stores' 4.2%.

So why fund stores at all? Doesn’t this make the store investment an expensive marketing exercise? Again, Gymshark’s done the research. It found that “a notable proportion of consumers value interacting with brands in real life in addition to online”. The rationale is that stores are where you build the real reasons to believe in a product - they’re where you go to drink the Kool-Aid.

As someone who’s worked in pure online, pure offline, and a mix of both, I can tell you that the magic happens when you play across both. One gives you a real home, the other helps you to extend your home beyond geographical borders.

With this in mind, Gymshark did pump cash into both and it spent slightly more on systems to support their digital experience than it did on stores and equipment. These came in at £16.7 million and £15.7 million, respectively.

3. Where did the cash come from?

Where to look: cash from operations, the change in what you owe suppliers, and borrowing.

In FY25, Gymshark’s own trading generated £26.0 million, and its £120 million credit facility was used during the year but was repaid in full by the year end. Personally I take this as a clean read because it isn’t sat on a large repayment that’ll just bite the business in another month.

Meanwhile, although FY24 had higher pre-tax profit, £22.4 million of that year’s cash came from owing suppliers more. This might be read as a false sense of security, given that unpaid bills are technically a debt.

4. What’s flattering the profit?

Where to look: any variations, or “adjustments” in how you’re calculating profit.

This is where I’ll point to Gymshark’s £7.1 million currency gain. In FY25, the business changed how it calculates its headline measure - by its own assertion, it leans on adjusted EBITDA.

In FY25, intercompany currency movements were included in adjusted EBITDA. In FY24, they were left out. On FY24's method, adjusted EBITDA would have fallen 6%. On the new method, it increased 4.2%. It’s disclosed - but it’s worth being aware of when reading your own numbers.

So, does your thin pre-tax profit show that you’re building or bleeding?

Gymshark’s answer is mostly building, with some bleeding along the way. £10.5 million went on one-way costs, and a fortunate currency gain helped to create a bit of shelter. The rest went into stores and systems for channels that are already selling, and the borrowing was paid back. We’ll be able to get an early steer on whether it’s working when the FY26 accounts come in - ideally gross margin will be back above 63%.

All-in-all, it’s the brand’s before and after that you’ll want to take from this article. The shift of going from spending the money in the middle on cost centres, to value creators. So, with last year’s accounts open:

1. List your biggest spends and put each one in a column: cost centre or value creator. Be honest - a discount is still a cost centre, even if it hit the sales target.

2. For each value creator, write down the metric that it’s meant to impact. It might be gross margin, it might be cash conversion - and set the date you’ll check it.

3. For each cost centre, decide whether to cut it, cap it, or find a way to turn it into a value creator - funding to wake-up lapsed customers only, say, rather than something that goes out to everyone.

If you can’t pin a value creator to a number, then you are most likely dancing around the fact that it’s actually a cost centre… just wrapped up in a fancy story.

Unless stated otherwise, figures are from Gymshark Topco Limited’s Annual Report and Financial Statements for the year ended 31 July 2025, filed at Companies House under Gymshark Group Ltd (company 12711328) as “Consolidated accounts of parent company for subsidiary company period ending 31/07/25” on 22 April 2026.

This content is produced for informational purposes. It does not constitute specific business, commercial, or investment advice for any individual organisation. For specific business guidance, please get in touch: suzannah@strongbrandstrongbusiness.com.