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STOCK WATCH: Booktopia funding ‘hampered’, Kogan shares slide

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By Published On: November 29, 20220 Comments

Investors respond to Kogan's 40% profit slump. Booktopia's (exiting) Chairman reveals external funding efforts "hampered by...board activity".

Last Thursday, Kogan released its 2022 annual general meeting update, revealing the company’s gross profits for the financial year-to-date (July-Oct 31) sat at $41.1 million, down 40.6% on the same period in 2021. Despite this, the market initially responded well, though this was short-lived.

Kogan Chairman Greg Ridder, highlighted that in FY22, the company delivered its highest ever Gross Sales results ($1.18 billion) and returned to positive operating cash flows, generating $61.8 million of operating cash flow and ending FY22 with $31.2 million of net cash. It also reduced its inventory level by almost 30% down to $159 million.

It is this  excess inventory issue that had plagued Kogan throughout much of the year, although CEO and Founder Ruslan Kogan is looking forward, and said the company aims to delivery solid margins again in the June half. “Once the final sell through of inventory is completed, we plan to have the Kogan Group return to the historic growth trajectory and profitability that it has been able to deliver,” he said.

“The trading results reflect a period of subdued sales activity in e-commerce, whilst also cycling strong results in the prior COVID year,” Kogan added. “We are now in a phase of consolidation, with the aim of returning to the levels of profitability and operating leverage that we previously delivered in the years between our IPO and the earlier stage of the pandemic.”

Shareholders haven’t been quite as optimistic. Its share price has since slumped, dropping from $3.70 last Thursday (the day of the AGM) to $3.57 at close on Monday and continuing to drop on open.

ASX Listed E-Commerce Index

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

In more AGM news, Chris Beare gave his last address as Chairman of Booktopia yesterday. He described the year under review as one of the “most challenging” in Booktopia’s 18-year history. “Like all e-commerce companies we have at times struggled to keep pace with the constantly evolving demands placed on us by the pandemic and the rapidly changing landscape that has emerged in the post-COVID economy.”

Beare did however draw attention to the highlights of the year, including a 7.5% increase in revenue to $240.8 million, with AOV and average annual customer spend up year-on-year. Top-line results failed to translate into increased earnings however, with EBITDA falling 54% to $6.2 million as a result of increased costs. Its Lidcombe Customer Fulfilment Centre was “overwhelmed by the impact of the extensive lockdowns and widespread COVID infection rates in Sydney”. The result was that Booktopia didn’t have access to the staff required to meet demand. It took “prudent action” to wind back marketing in the lead-up to Christmas so that it was not seeing books it had no capacity to deliver. Clearing the backlog of orders and re-stocking the warehouse was expensive and time-consuming, and results in significant additional costs.

“We have learnt from this and have taken action to improve out future performance,” Beare added. But it has meant its profits have been further eroded as it has recognised several one-off costs, including a number of redundancies which cost $1.3 million.

Current year trading (FY23) volumes and revenues are down around 20% from the same period last year, which is below expectations. Beare stated however that it has entered the Christmas sales period well-equipped to meet customer needs, and early signs are that it is tracking to expectations. It also expects the upcoming academic season to be in line with 2022.

The profitability of Booktopia “remains challenging” and despite plans to address this, does not expect to see fundamental change until delivering operational improvement and improved margins as a result of the move to the new customer fulfilment centre (CFC) in early FY23. Booktopia has been seeking external funding for the fit-out of the new CFC but this has been “hampered” by the EGM and Board activity.

Beare is leaving as an outcome of a shareholder proposal from Tony Nash to call an EGM and remove Beare and several Directors of the company. Booktopia is “well advanced” in rebuilding the Board and is “proceeding well” in its search for a new CEO, though no further appointments or announcements were made in this regard.

While there’s no doubt that inflation and cost-of-living pressures have impacted consumers, November is set to be a stellar month for e-com. In fact, E-Com Revenue for November is set to surpass 2021 levels, forecast at $5.17B (compared to $4.99B in 2021). Despite the difficult economic landscape, online retail looks set to receive a massive boost from November sales events (including Click Frenzy, Cyber Monday and Black Friday) as well as general Christmas spend. Consumer confidence is extremely high with a massive 86% of Aussie shoppers planning to spend the same or more online (as at mid-November). There has been an enormous jump in those planning to spend more online in the coming month, now 55%. Just 14% plan to decrease their online spend in the coming month.

And yet, despite consumer confidence, the ASX Listed E-Commerce Index is down 3.1%, performing well below the ASX200 which is up 1.3%.

In the last seven days, the best performer is BikeExchange, up 11.8% from $0.017 to $0.019. Redbubble is the worst performer down 6% to $0.55 at close on Monday. Adore Beauty is down 4.8% in the last week and Cettire is down 2.5%. Temple & Webster is down 5.6% in the same period. We’ve already seen Kogan continue its descent downwards, (from $3.57 at close yesterday to $3.49 by lunchtime Tuesday) and Booktopia is down from $0.215 at close on Monday to $0.20 at time of writing. In this regard, we expect a race to the bottom in terms of who will claim ‘worst performer’ this time next week.

Figures are current as at close of ASX on 28 November 2022. This is analysis only and not intended as investment advice.

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About the Author: Natasha Scholl

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