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Adore Beauty’s Shares Just Dipped – Here’s Why
Despite an increase in revenue, Adore Beauty’s (ASX:ADY) share prices have tumbled following its quarterly update from the ASX.
While its revenue is up 47 percent on PCP and reported an increase of its Active Customer by 82 percent YoY, its share prices saw a slip, now trading at 9.83 percent lower $4.12 on Thursday, 6 May.
To put this into perspective, Adore Beauty’s listing price was $6.75 and had a debut price of $7.42. Overall, the retailer’s shares have fallen 46 percent since its first day of trading in October.
Why did this happen?
Adore Beauty shared its quarterly update on May 6, signalling strong growth in revenue, up 47 percent on PCP to $39.4 million. This was driven, the retailer reports, on customer retention and strong performance in its core categories.
“The business is making strong progress on our strategy to leverage our online market leadership to further capture market share in a large and growing market,” said Tennealle O’Shannessy, the CEO of Adore Beauty. The retailer will continue to make ‘disciplined investments’ into its App and Loyalty Program, which launched in March 2021.
So why did the share prices fall so suddenly? To start with, there was a bit of misunderstanding surrounding the number of Active Customers. In its report released on Thursday 6 May, it reported a 69 percent PCP increase to 687,000 in Q3 FY21. However, in its half-year trading update, the retailer recorded an Active Customer base of 777,000, signalling a dip in Active Customers.
Adore Beauty sent out a clarification this morning, stating that the number reported in the half-year results was reported on a 12-month basis, whereas the Q3 report was based on a nine-month period. While this helped cushion the blow of the falling share prices slightly, it’s yet to reverse the damage entirely.
Another reason why the shares slipped is due to trending concerns over the online retail bubble and its potential to burst. The e-commerce ASX shares across the board have been struggling a bit recently, with the reports from Kogan, Redbubble and other retailers that listed on the ASX last year all experiencing slight dips.
This comes as the accelerated growth of e-commerce is starting to plateau, as we enter the ‘new normal’ levels of growth. The natural response for share prices is to drop when revenue slips on the previous quarter, but this doesn’t mean that the entire e-commerce industry is going to fall out of favour and burst.
Is It a Cause for Concern?
It’s imperative to remember that a slip in growth in Q3 does not necessarily indicate that the online bubble is bursting. These dips are often seasonal and should be expected, especially coming out of the peak holiday season and a year of unprecedented growth. Moreover, even if revenue or sales dip slightly compared to the previous quarter, it’s imperative to look at YoY growth.
According to the most recent Trajectory Report from Power Retail, April is set for 18 percent YoY growth for e-commerce, and traffic levels are up even percent compared to the same period last year. While many investors and stock market watchers hold concerns that the bubble will burst, the industry is reporting encouraging growth across revenue and traffic.
The same can be said for Adore Beauty, which is reporting strong growth and an increase in revenue on PCP. “We continue to make disciplined investments in our mobile app, loyalty program, content capabilities, range and adjacency expansion opportunities and private label development,’ said O’Shannessy. “We look forward to updating investors further at our inaugural full-year result presentation in August.”
In March this year Adore Beauty launched its loyalty program, Adore Society, with sign-ups ‘ahead of expectations’. The three-tiered program aims to increase the AOV of repeat shoppers and increase loyalty between business and customer.
Currently, the beauty and personal care industry market in Australia is worth $11.2 billion with an expected compound annual growth rate (CAGR) of 26 percent to 2024. This is a lower market than the penetration in the US, China and the UK.
“Given the predominantly fixed nature of the business’ cost base, management expects scale benefits to increase operating leverage and deliver EBITDA margin expansion in the longer term as the Company continues to grow revenue,” the retailer wrote.