Cost-of-living pressures and subdued consumer sentiment are reportedly impacting revenue and profit as Adore Beauty looks to further engage loyal customers, targeting increases in order frequency.
Pure play online beauty retailer Adore Beauty (ASX: ABY) has announced its FY23 results, showing a decrease in revenue of 9.6 per cent over the previous year, down to $ 180.6 million. The company says its reported EBITDA of $ 0.6 million, down from $ 5.3 million in FY22, reflects “lower operating leverage, cost inflation, and re-investment in key initiatives” in its fall of around 89 per cent.
The last financial year has brought challenges, with the company’s gross profit margin shrinking by 0.5 per cent in FY23 to 32.8 per cent, which it says reflects “higher levels of promotional discounting and inflation across key input lines”.
Cost-of-living pressures and more strategic consumer shopping behaviours also look to have impacted profitability. Adore Beauty indicates the effects of subdued revenue and a higher cost of sales on profit margins and notes that revenue rebounded 0.5 per cent in H2FY23 due to “multiple record promotional events”, including Cyber, Afterpay, and Click Frenzy Mayhem sales.
The company states its primary revenue driver is customer loyalty, with 76 per cent of all revenue coming from its 490,000 returning customer base in FY23, representing a 4 per cent increase over FY22. Adore Beauty CEO Tamalin Morton comments, “In this volatile operating environment, Adore Beauty’s return to growth in the second half reflects our compelling customer value proposition and the strength of our loyal returning customer base.”
Annual revenue per active customer (shoppers who ordered within the last 12 months) declined 9.6 per cent from FY22 figures, while average order frequency (AOF) also fell from 2.1 to 2.0 times per year. The company points out that this was offset by a record average order value (AOV) of $111.60 – although price rises have contributed to that. Adore Beauty CFO Stephanie Carroll says, “From a frequency point of view… we saw that decline, but we’re pleased with the average order value improvements that we’ve seen.” She also states, “When price increases come through, they’re generally market-wide and reflected in the RRP, and they are passed on. So that’s what you would see in average order values increasing.”
The company plans to lift order frequency with a customer-centric approach, including loyalty program enhancements, optimisation of the user experience, and accelerated adoption of its mobile application. “New initiatives are underway to engage loyalty members and returning customers, targeting increases in order frequency”, says Morton.
The mobile app has increasingly contributed to revenue, reaching 24.6 per cent of the total revenue share by Q4FY23. The mobile app experience is reported to drive 14 per cent higher average order value (AOV) and 34 per cent average order frequency (AOF) than the company’s website.
Adore Beauty also notes it is “leveraging data and AI technology to increase personalisation and improve retention, AOV, and lifetime value (LTV)”.
The company says it expects trading conditions to remain challenging given higher cost-of-living pressures and “subdued consumer sentiment”. However, it will continue to focus on margin and cost improvement in FY24.