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Kogan (ASX:KGN) share price sinks 13% as online sales reverse

The Ltd (ASX: KGN) share price has fallen 13% in Friday morning trade after announcing online sales growth had reversed year on year.

Key financial results for the quarter ending 31 March:

  • Total sales retracted 3.8% to $262.1 million
  • Gross profit fell 11.2% to $41.0 million
  • Adjusted EBITDA loss of $0.8 million, a reversal from $7.0 million in FY21

The disappointing numbers reflect management’s move to increase inventory and operational capacity during the quarter with demand not meeting those expectations.

Management noted that delivery times and customer service is currently at all-time highs. Therefore attributing the slow down in sales not to Kogan but to “general market factors”.

The result is similar to the same report one year ago, where Kogan overordered inventory forcing them to discount goods.

Subsequently, gross profit (sales minus cost of goods) for the core website fell 20% from the prior-year result.

While Kogan highlighted that revenue has grown 19.4% per annum over a two-year horizon, the business conveniently left out that gross profit has improved by just 6.1% over the same period. Meanwhile, adjusted EBITDA had gone from $9.6 million to a small loss.

“…overall sales growth moderated in line with industry trends following the strong acceleration over the initial COVID-19 period”

Positively, the business expects to recalibrate costs throughout 2022 to support a return to historical operating margins.

Furthermore Kogan Marketplace, Energy, Internet and Mobile all recorded record numbers, albeit off a small base.

What next for the Kogan share price?

Kogan is largely correct in saying online activity has slowed.

Yesterday Adore Beauty Group Ltd (ASX: ABY) recorded a 9% increase in sales for the third quarter, while Redbubble Ltd (ASX: RBL) revenue fell 7%. The March quarter is also the seasonal low month for retailers.

It seems Kogan has a loyal customer base that repeats purchases frequently from the site, illustrated by the 20% quarter-on-quarter growth in Kogan First, its equivalent membership offering to Amazon Prime.

But outside of the frequent visitors, it’s finding it difficult to grow, with active customers up just 3.6% year-on-year.

At the same time, margins are reversing, placing pressure on management to cut costs. Management indicated it will reduce costs, but will this impact the record levels of service and fulfilment achieved during the third quarter?

The market saw today’s result as a miss, which has become the norm rather than the exception over the past 12 months. The Kogan share price is down 64% over the same period.

The business needs to demonstrate profitable growth before the Kogan share price slump reverses.

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