The Adore Beauty Group Ltd (ASX: ABY) share price has been under pressure after listing at an initial offer price of $6.75 in November 2020. Since then, Adore shares have fallen more than 20%, trading at $5.31 at the time of writing.
Could the current Adore Beauty share price represent a buying opportunity?
ABY share price chart
What does Adore Beauty do?
Adore Beauty is a ‘pure-play’ online retailer that sells third-party beauty and personal care products. According to research and consulting firm Frost and Sulivan, total beauty and personal care product sales in Australia totalled $10.9 billion in 2019, with online sales comprising just 7.3%.
Adore Beauty currently sells more than 11,000 unique products from over 230 global and Australian brands. According to Adore’s prospectus, the group has over 590,000 active customers, growing a mammoth 278% over a four-year period. Adore views its ability to engage with customers as a source of sustainable competitive advantage.
In FY20, Adore earned revenue of $121.1 million, EBITDA of $5 million and net profit after tax (NPAT) of $2.5 million. This represented rapid growth from FY19, when Adore generated pro-forma revenue of $73.2 million, EBITDA of $1.6 million and NPAT of $0.5 million.
FY21 trading update
On 1 December 2020, Adore provided a positive trading update for the first half of FY21.
Adore advised that the November promotional sales period, including Black Friday and Cyber Weekend, surpassed expectations. The group mentioned that the ongoing COVID-19 restrictions in Victoria contributed towards higher sales volumes.
The group accordingly upgraded revenue guidance for the first half of FY21 to circa $95.2 million, representing a 7% increase on the prospectus revenue projection. Adore expects this to contribute towards higher EBITDA in 1H FY21.
Adore Beauty CEO Tennealle O’Shannessy commented: “We are pleased to report strong sales ahead of our Prospectus forecasts. The business has continued to scale, deliver content and meet the needs of our customers at a time when they need it most.”
Adore Beauty will next update the market on the release of its half-year FY21 results in February.
Summary thoughts
Adore Beauty is growing quickly into a large addressable market, which should continue to benefit from the shift from in-store sales to online sales. With increased scale, incremental revenue should translate to materially higher profits over time.
As the Adore beauty share price is trading at a notable discount to the initial offer price, and given that the company has upgraded guidance, this could represent a buying opportunity. However, it may be prudent to wait until 1H FY21 results are released.
