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STOCK WATCH: ‘We were wrong’, Shares Tumble

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By Published On: August 24, 20220 Comments

Drama on set as Nash calls for an extraordinary general meeting, Kogan admits to mistakes and ASX e-com performance takes a swift turn.

After a boost in late July, Kogan shares are now on a downwards spiral after the release of the company’s FY22 results.  Kogan reported an 8% decline in revenue to $718.5 million and a $2.9 million net loss, as well as revealing that its active customers had slipped under 4 million.

Commenting on Kogan.com’s performance over FY22, Founder and CEO, Ruslan Kogan said: “For more than 10 years, e-commerce grew in Australia at a consistent and stable rate. This enabled Kogan.com to plan for growth in a measured and precise way. The consistency of this growth was rocked by the onset of the COVID-19 pandemic, when customers turned to Kogan.com, and we found that — almost overnight — our business started to double in sales…This acceleration of sales continued for many months in the first year of the pandemic, and we bet that the trend was not going to stop…[W]e increased both our range and volume of inventory, as well as our logistics footprint to match this expected level of growth.”

“We were wrong,” Kogan said. “As the true volatility of the situation settled in — caused by stay-at-home orders and lockdown ambiguity — e-commerce did not continue to grow as anticipated. This led to us holding excess inventory, and an associated increase in variable costs and marketing costs to sell through the inventory. As we’ve discussed at length through regular updates this past year, profitability in FY22 was impacted.”

This is not new information for investors. Kogan has been transparent about its excess inventory woes and what it’s doing to recover. And yet, its disappointing FY22 results seem to have rattled investors. The response to its announcement was swift, dropping to $3.55 at close of ASX on Tuesday. This marks a loss of 17.6% in the last fortnight and a massive -71.6% in the last year.

Although it’s not all doom and gloom. While revenue and profit in FY22 fell, Kogan’s adjusted EBITDA showed improvement heading towards the end of the financial year. “The Business looks forward to returning to positive operating leverage, having commenced the process of driving efficiencies in operating costs and product ranges which has led to a return to Adjusted EBITDA profitability in 4QFY22,” it said in its release. EBITDA was $(21.8) million in FY22.

In last week’s Stock Watch we reported on the share price surge (almost) across the board, with Adore experiencing such sudden growth that the ASX issued it with a price query. But there were signs that it might be short-lived, and in fact suggested that we were sure to see further volatility as we headed further into August. And that is exactly what has happened. Cettire’s share price dropped overnight from $0.91 to $0.77. The company did make an announcement that there would be a release on shares coming out of voluntary escrow, and then provided a further update (presumably after a swift response on the ASX) that Founder and CEO Dean Mintz has ‘no current intention’ to sell shares in the company when shares are released on 30 August. Cettire is one that has always seemed to baffle the market. Perhaps it’s just the lack of ‘visibility’ of its CEO compared to others in the e-com space. Cettire shed 26.1% in the last seven days.

Adore Beauty has also failed to maintain the highs it experienced last week, dropping 21.4% in the last week to $1.99 (after closing at $2.20 last Tuesday).

ASX E-Com Index

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

Redbubble has dropped a massive 42.5% over the last seven days, in response to its FY22 results, closing at $0.86 last night after Hughs of $1.50 last week. Announcing EBITDA was down 121%, this free call is perhaps not unexpected. The company said it struggled in the aftermath of COVID-19 sales highs, increased competition in the digital space, the war in Ukraine, and record high inflation impacting consumer spend. Redbubble CEO Michael Ilczynski said that a “disciplined approach to building internal capacity is required to return the Group to growth and achieve our medium-term aspirations”. The company forecasts that in FY23 its revenue will improve and that it will dramatically reduce hiring. Year-on-year, the Redbubble share price is down 76.4%.

Booktopia announced last week that it had received notice that Tony Nash planned to call an extraordinary general meeting to oust directors Su-Ming Wong and Christopher Beare, and ‘any other person appointed to the board between 17 August 2022 and the end of the extraordinary general meeting (other than Ms Abigal Cheadle)’ and appoint former forensic accountant Cheadle as director of the company. Despite this, its share price has remained (perhaps surprisingly) fairly steady, dropping only 10.3% to $0.26 in the last seven days. The company has previously experienced enormous volatility, after Nash initially stepped down as CEO in May, and then ousting him in July. Is the relative stability of the Booktopia share price because investors believe the notice of the EGM will lead to nothing? Or because there will be a substantial shake-up on the horizon? With no CEO yet announced to replace Nash, it seems the company is in limbo while investors wait and see what’s next.

Temple & Webster initially experienced a lift last week after its FY22 results announcement but has dropped 14.2% over the last seven days to just $4.90 (after reaching $5.71 at close last Tuesday). Investors initially responded well to its announcement, which included news that revenue lifted 31% on last year to $426.2 million and an EBITDA of $16.2 million (and a margin of 3.8%). Revenue growth was driven both by higher customer numbers (active customers jumped 21% to 940,000) and higher revenue per active customer (up 6%). It seems this ASX boost was short-lived, and like others on the E-com Index, investors are going cold.

The E-Com Index is down a massive 18% in the last seven days, severely underperforming compared to the ASX200, which is down just 2% in the same period.

Figures are current as at close of ASX on 23 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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