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STOCK WATCH: Battle of the Full Year Results, Booktopia Beats Adore, Cettire Tanks

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By Published On: August 30, 20220 Comments

Earnings season is keeping us on our toes. The market initally responded well to Booktopia's FY22 results, but will it last? (Spoiler: No.)

Adore Beauty shares have tanked after it released its full-year results yesterday. At $1.65 at close of ASX on Monday, the company is now down 8.6% over seven days and a massive -64.3% year-on-year. In contrast, Booktopia closed at $0.31 after its earnings announcement, marking an impressive 14.8% lift over seven days (albeit 89.1% down year-on-year after a disastrous 12 months). The investors have spoken loud and clear.

Booktopia reported a ‘challenging’ full year, with revenue up 7.5% to $240.8 million and gross profits increasing by 6.3% on the prior corresponding period. Underlying EBITDA was $6.2 million, down from the FY21 results of $13.6 million. It said that results were impacted by increased customer fulfilment costs associated with COVID and a number of one-off items which had a negative impact of approximately $8.7 million on EBITDA and $13.8 million on NPAT, including restructuring costs, new Customer Fulfilment Centre, M&A-related costs, Welbeck Investment Impairment and the ACCC penalty. Redundancies and the removal of former CEO Tony Nash cost the business $1.3 million. This followed a review of overhead expenditure in May, aligning with its realignment of costs for the business’ growth strategy.

“Booktopia remains Australia’s number one choice for book buyers, and we are very proud of how our team has responded to the market conditions over the last 12 months. We have continued to grow our business across our key metrics, even compared to the extraordinary levels of activity in FY20 and FY21,” said the Acting CEO of Booktopia, Geoff Stalley. “The last financial year also presented a number of challenges for our business as we dealt with Sydney’s lockdowns during the first half and the broader economic, supply chain and human resource challenges of the second half. We have taken decisive action to address rising costs and have developed a comprehensive strategy to return the business to sustainable, profitable growth over the next few years.”

Booktopia has also provided $6 million for an outcome agreement with the ACCC. In December 2021, the ACCC instituted Federal Court proceedings, alleging that Booktopia was ‘making false or misleading representations to consumers about their rights to refunds and other remedies for faulty or damaged goods’. The $6 million will be payable over a maximum term of five years, paying instalments of $1.2 million annually. The matter will come before the Federal Court in December 2022 for a hearing on the financial penalty and other remedial orders.

In the second half of FY22, the company took action to reduce its overall operating costs and improve efficiencies, initiatives which had a positive contribution to margin improvement in the final quarter of FY22. The investment in the company’s new customer fulfilment centre is expected to further improve margin in FY24 and beyond.

Despite Booktopia’s initial headwind, its share price is already dropping to $0.28 by midday on Tuesday. Plot twists aplenty, as the book retailer knows better than anyone.

Source: ASX Listed E-Com Index Performance based on ASX reporting for the period

Despite the (perhaps surprisingly) positive response to Booktopia’s earnings announcement, Adore’s earnings announcement resulted in an immediate sell-off. Like all good beauty products, it knows how to accentuate its best features, and from just the right angle and under just the right light, things were looking good. The company reported revenue of $200 million, up 11% on FY21 and 65% on FY20. this was driven by valuable returning customers (which drove 70% of all revenues) with higher average order values. Active customers (872,000) were up 7% on FY21 and 48% on FY20. Returning customers (472,000) were up 31% on FY21 and 115% on FY20. It also launched its first owned brand, Viviology. EBITDA was $5,3 million with a margin of 2.7% in line with guidance and reflecting reinvestment.

“FY22 has been another successful year for Adore Beauty, one in which we delivered record revenue, multiple record trading days, and strong growth across key customer metrics, while continuing to re-invest in the business,” said Tennealle O’Shannessy, the (soon-to-be departing) CEO of Adore Beauty.

“Our changing active customer base now has a higher proportion of returning than new customers, with subscription-like retention rates after just two years on the platform. This highlights the resilience and future potential of Adore Beauty’s business. Our highly engaged and loyal returning customers are reflective of the broader premium beauty category, where customers are brand loyal, shop with beauty specialists and frequently re-purchase skin and hair products they use daily and consider essential.”

But this is what seems to have raised some red flags for investors, with returning customers driving revenue, and new customers lagging. Furthermore, while active customers were up year-on-year, there was also a fall in active customers in the second half. Looking to future growth, this is obviously not ideal.

O’Shannessy said: “Our strategy is working, driving customer metric improvements throughout FY22, and positioning the business for sustainable long-term growth. Our scaling mobile app, loyalty program, and adjacencies directly support and drive revenue growth, retention, and lifetime value, and will continue to deliver benefits going forward.”

But is the strategy working? Or if this is the strategy working, is it not enough for investors?

Looking ahead, the retailer does not expect to achieve an EBITDA of two to four percent in FY23 due to cyclical headwinds and its disciplined spending. Despite this, Adore Beauty forecasts that it will remain profitable on a full-year basis. Moreover, it predicts that the two to four percent EBITDA margin range will return in the full year of FY24. It is also forecast to reach an eight to ten percent EBITA by FY27. It’s a massive forecast given current figures and well ahead of industry peers, which may be raising some eyebrows for those in the know.

Last week reported that Kogan, Temple & Webster, and Redbubble shares tanked after their earnings announcements. This trajectory has continued. Redbubble is down 16.4% over seven days to $0.74, Kogan is down 14.2% in the same period, to $3.26. Temple & Webster is performing slightly better than its counterparts, down 1.2% to $4.89 yesterday (though far from the $5.71 it was trading at mid-August).

Cettire closed at $0.88 on Monday. After releasing its annual report this morning, it skyrocketed to $1.00 this morning. The online luxury fashion and accessories retailer holds no inventory, but has access to thousands of luxury goods. This business model previously caused concerns for investors due to worries about potential changes to business arrangements with suppliers as well as potential for future growth with the current model. These concerns seem to have been put to rest. In fact, in terms of future growth, Cettire is aiming for profitable revenue growth in 2023 and expects to launch into mainland China (in partnership with in this financial year. For FY22 is reported 127% sales revenue growth ($210 million), 260,000 active customers, 50% gross revenue from repeat customers. It has already broadened its presence beyond the US, UK and Australia. EBITDA was at a loss of $21.5 million, driven by significant investment to scale its platform. There was much focus on the proprietary storefront software and the fact that Cettire now owns the technology across the end-to-end customer journey (presumably a large part of the investment here) and, according to CEO and Founder Dean Mintz, a huge part of what will underpin the company’s future growth.

Mintz recently confirmed he would not be selling any further shares in Cettire when shares are released from voluntary escrow. A quarter of the 251,238,220 escrowed Cettire shares were released in February this year. In late March, Mintz sold down 35 million shares in the company (representing 9.18% of the Company’s issued capital), pocketing over $47 million. The market did not respond well to the announcement, with the Cettire share price plunging.

While Cettire received a short-term boost this morning, whether this will continue seems highly unlikely. The momentum has already slowed, dropping from $1 just a few paragraphs ago to $0.86 at time of writing. $0.85….$0.84…..$0.81….

Figures are current as at close of ASX on 29 August 2022. This is analysis only and not intended as investment advice.

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About the Author: Natasha Scholl

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