Kogan FY23 results: will a recalibration improve profitability?

Kogan (ASX: KGN) has announced a “complete recalibration with sustained and improving profitability” in its FY23 results. The company delivered an adjusted EBITDA of $ 6.8 million, though adjusted net loss after tax totalled $ (7.7) million.

Revenue was also down 31.9 per cent vs FY22 to $489.5 million, which Kogan says reflects general market trading conditions and a realignment of inventory levels.

During the financial year, Kogan decreased its inventory by around 57% compared to the previous year, saying it has since aligned stock with demand for FY24. This adjustment is positive news, as Ruslan Kogan talked with Power Retail in February about the company’s inventory issues following a pandemic-driven sales boom. He said at the time, “We announced a while ago that we’re overstocked – its causing a lot of inefficiencies in the business, there’s too much discounting, the storage and warehousing costs associated with it, and all the other inefficiencies that go with having too much inventory.”

Kogan also acquired online furniture retailer Brosa in December 2022 at a $1.5 million purchase price, which included $1.1 million of inventory.

The FY23 stock realignment plays an important role for the company, as it states it is making a “shift towards a business model with lower risk, lower cost-of-doing-business, lower inventory, higher margin and higher recurring income.

The business states it is undergoing an “evolution in business model”, with FY23 marking the first year that Kogan.com (excluding Mighty Ape) gross sales and gross profit contributions from “Platform-based sales” have outperformed product divisions. Platform-based sales refer to revenue from Kogan’s online marketplace, the Kogan First membership program, Kogan Verticals (such as mobile, money, and insurance products), and advertising & other income. Sales from the company’s Exclusive Brands, Third-Party Brands and Mighty Ape business are excluded.

Founder and CEO Ruslan Kogan remarks, “FY23 marked a significant milestone in the history of our Business. For the first time ever, Kogan.com’s platform-based sales contributed the majority of our Gross Sales and Gross Profit. Importantly this has enabled us to deliver better quality earnings as we successfully transitioned into a higher margin, lower risk, platform and software based business while offering our customers increased competition and improved value.”

Customer loyalty is still rising, reaching 401,000 Kogan First members in FY23 at a 7.8% lift over FY22 – though it didn’t come close to matching the 210% member increase in FY22 over the previous year. What may be a greater concern to the company is the drop in over a million active customers. That number landed at 2,945,000 this financial year – 2,190,000 for Kogan and 755,000 for Mighty Ape.

Kogan also launched its new Advertising Platform at the end of FY23, which allows Kogan Marketplace Sellers to increase prominence on the platform. The company anticipates the platform to scale quickly in FY24 following “promising initial adoption in the first weeks of FY24.”

Additionally, Kogan highlighted its use of AI within its proprietary technology stack. It is apparently already leveraging AI-powered coding assistants and product listing creations to drive efficiencies. It also indicated that automated behavioural marketing based on event-based AI insights and a “state of the art” recommendations engine should help put the most suitable products in front of customers.

The company notes that soft trading conditions impacted its revenue in FY23 but expects growth in FY24 throughout its verticals, the Kogan Marketplace, membership subscriptions, and its recently introduced advertising platform.

Ruslan Kogan comments, “We have set ourselves up for success in FY24 and beyond, and in doing so, we have ensured we’re in the best position possible to deliver exceptional value products and services to millions of customers.”