The Adore Beauty Group Ltd (ASX: ABY) share price is down 7% after the e-commerce ASX share reported solid growth in its FY22 half-year result.
Adore Beauty is a business that sells many thousands of products from lots of different brands.
Adore Beauty’s attractive HY22 report
Here are some of the highlights from the six-month result:
- Revenue grew 18% year on year to $113.1 million
- Active customers increased 13% to 876,000, whilst returning customers rose 56%
- The gross profit margin increased 0.6% to 33.1%
- EBITDA was $3.8 million. The EBITDA margin was 3.3%
What drove the result?
Adore Beauty says that it is executing a strategy to cement its online market leadership position, and it is well positioned to capture market share in a large and growing market benefiting from structural tailwinds.
Whilst growing active customers – someone who has bought within the last 12 months – is an important part of the puzzle, increasing the value and loyalty of each customer is very important.
Annual revenue per active customer grew by 5% to $224, driven by higher average order values and an increasing proportion of returning customers. It’s growing its loyalty program with continued strong member sign-ups.
In the 2021 calendar year, the number of returning customers jumped 55.7% to 436,000. These returning customers become increasingly valuable over time.
Adore Beauty is implementing strategic initiatives to reduce the churn of customers within the first year, improve retention, including mobile app and loyalty. This could be an important driver of the Adore Beauty share price in the coming years. Customers coming back again and again is important.
Retention plans
The business is investing in a disciplined, data-driven way to acquire and retain customers, working with brand partners to scale brand-funded marketing.
It’s also investing in things that support engagement and retention such as ‘owned’ channels with media and content that supports discovery and fulfilment, driving higher customer loyalty and growth in returning customers.
These ‘owned’ channels reduces reliance on competitive paid channels, which are currently showing ‘price volatility’.
Trading update
Adore Beauty says that it’s seeing growing brand awareness, an ongoing shift to online shopping and it’s positioned for future growth.
The positive trading momentum has continued into the second half. In the first six weeks of the FY22 second half, revenue was up 14% year on year. The EBITDA margin will stay between 2% to 4% as it re-invests for growth.
In the longer-term, as the business grows, scale benefits are expected to increase operating leverage and deliver EBITDA margin growth.
Final thoughts on the Adore Beauty share price
Whilst this result didn’t have as much growth as HY21 or FY21, I thought it was good to see ongoing double-digit revenue growth. The fact that the gross profit margin keeps going up is a positive sign for future profitability. Adore Beauty says it’s on track to launch its first private label skincare brand in the fourth quarter for FY22. A private label brand, offering various categories of products, could be very useful over the coming decade.
I think this e-commerce company is one of the most promising ASX growth shares that are worth a few hundred million dollars. I’d be happy to add it to my portfolio at today’s value.
