The Adore Beauty Group Ltd (ASX: ABY) share price plunged 19% on Thursday after giving investors a trading update.
Why did the Adore Beauty share price fall?
In the third quarter of FY21, Adore Beauty reported that revenue was up 47% to $39.4 million. The number of active customers increased by 69% to 687,000 at the end of the third quarter. The company said that trading remained strong during the quarter. It was driven by a strong performance in the core categories on skincare and haircare.
Adore Beauty boasted that there has been strong retention and re-engagement rates for new customers acquired during the COVID-19 period. The Adore Beauty Loyalty program launched in March, with sign-ups ahead of expectations.
The business said that it’s on track to achieve FY21 full year revenue growth of between 43% to 47%.
Adore Beauty continues to see a structural shift in consumer behaviour towards online retail.
Management continue to pursue disciplined investment to drive revenue growth and further expand its online leadership position. FY21 EBITDA (EBITDA explained) will reflect the company’s continued investment, including marketing and advertising, as well as the full year run rate of people it has hired. Some investors prefer short term profit over long term growth investing by companies.
Management comments
Adore Beauty CEO Tennealle O’Shannessy said: “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. We continue to make disciplined investments in our mobile app, loyalty program, content capabilities, range and adjacency expansion opportunities and private label development.”
Outlook for the Adore Beauty share price
The company said that the beauty and personal care market in Australia is worth $11.2 billion and is expected to grow at a compound annual growth rate of 26% to 2024. Online sales make up 11.4% of this market, a lower rate than other markets like the US, UK and China.
Given this market, Adore Beauty’s strategy remains to grow its market share. Due to the fixed nature of the cost base, management expect scale benefits to increase operating leverage and deliver EBITDA margin growth in the longer term as it grows revenue.
This is yet another ASX e-commerce share that has dropped. Kogan.com Ltd (ASX: KGN), Redbubble Ltd (ASX: RBL) and Temple & Webster Group Ltd (ASX: TPW) have all committed to a high-growth, investment strategy. But investors didn’t want to hear about it.
If Adore Beauty keeps growing its revenue and active customers at a good double digit pace, then it could definitely be one of the ASX growth shares to watch for the long term.
