The Kogan.com Ltd (ASX: KGN) share price fell as much as 18% this morning despite the company announcing first-half sales growth.
Currently, the Kogan share price is down 5.14% to $6.65.
Headline hides underlying decline
Key highlights from the first half ending 31 December include:
- Gross sales of $698 million, a 9.4% increase year-on-year (YoY)
- Gross profit of $112.4 million, down 4.4% YoY
- Adjusted EBITDA of $21.7 million, a 58% fall YoY
On the surface level, the sales result doesn’t look too bad.
But a look under the hood tells a different story.
Despite the increase in total sales for half, the core Kogan.com business was a drag on the results, falling 2.6% YoY.
Total growth was supported by last year’s Mighty Ape acquisition, which contributed a full six months.
In the prior corresponding period, Mighty Ape contributed just one month of sales.
“Year-on-year performance was driven by the continuously accelerating Kogan Marketplace, our loyalty program Kogan First, as well as Kogan Energy and Kogan Mobile New Zealand”
“Growth in these areas was partially offset by a decline in both our Exclusive Brands and Third-Party Brands divisions which had extreme growth in the prior year”.
Positively, active customers across Mighty Ape and Kogan.com increased 10% over the year.
Furthermore Kogan First, its loyalty membership similar to Amazon Prime, increased members by 176% YoY to 274,00.
Costs bite bottom line
Gross profit (sales minus the cost of goods) decreased 4% over half despite the revenue increase.
Management noted ongoing supply chain interruptions and fluctuating demand as reasons for gross profit reduction.
Subsequently, logistic costs remained elevated, squeezing the adjusted EBITDA figure.
Kogan also invested significantly in its marketing to grow active customers and Kogan First members.
On a positive note, the company looks to be getting its stock back under control. Total inventory decreased by $31.1 million for the half to $196.8 million.
My take
The market initially overreacted to today’s announcement
But Kogan didn’t do itself any favours either.
The company led with “Gross Sales and Revenue exceeded FY21’s record first half” despite the underlying business going backwards year on year.
Additionally, the lack of commentary on Mighty Ape’s contribution is somewhat a concern.
Overall, I’d be looking elsewhere for new ASX share ideas.
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