Kogan.com today released its final results for the first half of FY23 and revealed following a tough year, the business returned to profitability in January this year.
To sum up the results announcement:
- Net cash (after loans & borrowings) grew to $74.0 million as at 31 December 2022.
- Inventories reduced to $98.3 million, from $159.9 million as at 30 June 2022.
- Group Active Customers were 3,323,000. Kogan.com ended the period with 2,550,000 Active Customers and Mighty Ape ended the period with 773,000.
- Kogan First continued to grow, with Kogan First Subscribers increasing 47.6 percent to over 404,000 and Kogan First subscription revenue increasing 83.1 percent.
- Gross Sales & Revenue of $471.1 million and $275.6 million declined by 32.5 percent and 34.3 percent, respectively. Major impacts on performance included the cycling of COVID-19 related lockdown orders and subdued sales for the Company.
- Gross Profit of $62.9 million declined 41.8 percent. Profitability during the period was impacted by the substantial right-sizing of inventory involving unprecedented discounting.
- Operational costs reduced following the substantial right-sizing of inventory.
- Adjusted EBITDA was $(4.4) million and EBITDA was $(23.0) million.
- Adjusted NPAT was $(9.6) million and Statutory NPAT was $(23.8) million.
- Adjusted Earnings per Share was $(0.09) and EPS was $(0.22).
- Return to Profitability occurred in January 2023 with Kogan.com recording its first positive Adjusted EBITDA month since July 2022 and Mighty Ape continuing its steady trend of profitability.
We sat down with founder and CEO Ruslan Kogan to discuss the results and dive deeper into how the company is positioned for the rest of the financial year and what is in the pipeline for Kogan.
Its been a tough run of it the past year but things are finally looking up, what have you learnt over the past six months?
The last six months have been us doing exactly what we said we would. Through the start of Covid we had a ripper half where sales went nuts and they needed us most. We had the most profitable half any Australian ecommerce retailer had ever had. We knew at that point what we achieved had been done with one hand tied behind our back because we sold out of a lot of things – so we made the decision to invest heavily in inventory and we got that call wrong in the same way that many other inventory based businesses through covid got it wrong and went heavy on inventory and have had to discount at a loss to sell through all of those in the last year or so.
That was the position we were in, we announced a while ago that we’re overstocked – its causing a lot of inefficiencies in the business, theres too much discounting, the storage and warehousing costs associated with it, and all the other inefficiencies that go with having too much inventory, and we said we’re gonna sell it down and that’s what happened in that half. We updated the market this morning that January saw us return to profitability, so inventory has come down substantially, we now have under $100 million in inventory for the first time in a very long time and with that comes a lot of other efficiancies as well. Having the right products in inventory helps the retailer a lot and that’s the position we’re in.
Loyalty programs are an important tool right now with trading conditions, Kogan First is doing really well – how will you keep up the momentum here?
Kogan First has has been a real pillar of our business. You would’ve seen that it now has over 400,000 customers. Sometimes being in the digital world and running an online business, things become numbers on a screen and our team said the other week, “do you realise that’s over four full MCGs?” and that really helps conceptualise what those sort of numbers look like.
In this tough economic environment when people are feeling cost pressures, loyalty becomes really important and our Kogan First program is designed to be a win, win, win. Theres nothing like it in Australia, you get real substantial savings on big ticket items. The data has shown members are saving money, and we are investing in the customer through those savings, theyre investing in us because of the loyalty, and also it’s a big driver of our efficiency. Our marketing cost has come down significantly, but also our owned and earned channels to acquire a customer. This is an important metric across online retails because it means you’ve got the loyalty of your customers and you can also be more efficient because there is essentially no ‘Google tax’ that you’re paying each time you want to sell something. The Kogan First program has been a huge driver of that. Its driven a lot of loyalty from our customers which enables us to be a lot more efficient and then pass on those savings to the customers.
The announcement highlights that for the rest of the year you have plans to enhance and develop Kogan Marketplace, with so much marketplace competition both here and in NZ, how does the Kogan Marketplace stand out?
We’ve now got over 20 million items in our marketplace from thousands of sellers and one of the big features of our marketplace is now our sellers are seeing theres a lot of shoppers with Kogan First on Kogan.com and if they provide exclusive deals on the platform to these Kogan First members, they will get a lot more customers. So you will see across the board that sellers are providing these incredible offers, it also means more and more sellers are joining which means more and more competition which drives prices down and customers are benefitting.
Another exciting area of us developing the marketplace is you would’ve seen us alk about our marketing and advertising platform. A lot of sellers have come to us and said, “hey, I love being on the Kogan Marketplace, I’m reaching more and more customers, but I want to reach even more customers, how can I do it? How can I make my products appear more often?” So we’re building out a marketing platform which will enable customers to advertise across our assets – being our website, our apps, our emails, and so on. So that’s a very exciting development which will once again be a win, win win for everyone. It’s a win for the sellers, who can reach customers, a win for our business with obvious financial benefits, and a win for our stakeholders.
With the threat of a looming recession, how do you plan to overcome the current downturn in ecommerce?
Historically, whenever there has been some tough times economically, we have actually seen increase in activity in our business because its when customers become more frugal. They start to do more research, they’ll open a few tabs and compare specs, read reviews, and in an environment where people do that, we will win more customers. Our business, especially our private label business is the most efficient way to get a product from point of manufacture into the customer’s hands. It’s a direct to consumer business model and you overlay on top of that the discounts from Kogan First and it’s a recipe for success even when the wider economy isn’t doing too well.
How is the acquisition of Brosa going? Will you be targeting any other acquisition opportunities for the future?
Brosa was an opportunistic acquisition and we integrated it fairly quickly, we soft launched the website with a full launch coming soon. We’ve been helping the administrators and liquidators the last few weeks sending orders out to customers, it’s just been a big mess in the background so we’ve been using our logistics expertise and buying power to assist them.
We are looking forward to the relaunch of Brosa and the official launch under our ownership coming soon.
In terms of other acquisitions, it is not something we are actively seeking. At the moment we are consolidating our growth at this stage of our business and we have a very strong balance sheet at the moment and are actively looking for various capital management measures that will drive long term shareholder value.
Finally, do you have any further commentary on the results and whats ahead for Kogan?
Its obviously been a challenging half, but we’ve done what we said we’ll do and January looked really positive. It’s a tough consumer environment but we’ve got some exciting areas of the business with Kogan First and various expansion plans and we are very excited for the future. No matter what the wider macro environment throws at us we’re very happy that we’ve built now a very agile and nimble business that can withstand the toughest environments.
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