The Kogan.com Ltd (ASX: KGN) share price has jumped 5% after providing a business update for the FY23 third quarter.
Kogan is the business behind a number of online retail businesses, it also offers services like mobile, NBN and insurance.
Kogan’s promising business update
The online retailer said that it has achieved three consecutive months of positive group adjusted EBITDA (EBITDA explained).
Kogan has “significantly corrected” its inventory levels, with inventory reduced to $78.3 million as at 31 March 2023. That’s down from $193.9 million from 31 March 2022. The inventory now matches the current levels of demand.
It finished the quarter with net cash (after loans) of $49.1 million. That’s up from net debt of $6.3 million at 31 March 2022. All debt within Kogan.com has been repaid, though a small advance remains drawn within Mighty Ape.
The company has group active customers of 3.06 million, with Kogan.com having 2.3 million active customers.
Its membership program, Kogan First, saw subscribers rise by 24.3% to 407,000 at 31 March 2023.
However, while profitability has returned, gross sales were down 28% year on year to $188.7 million, with soft market conditions because of “interest rate rises and inflationary pressure.”
Profitability increases
But, I think the most important thing is that that Kogan generates profitable sales. Its gross profit margin grew by 6.5 percentage points to 31.6%. There was the conclusion of significant discounting of selling aged inventory, and an increased proportional contribution from the marketplace, verticals and Kogan First commission streams.
Kogan also revealed that operational cost efficiencies continued to be achieved, with inventory right-sized. Variable and marketing costs as a percentage of gross sales reduced to 8.1%, down frm 10%.
In the quarter, it made adjusted EBITDA of $4.4 million and adjusted EBIT of $0.2 million. That’s very promising for the Kogan share price, in my opinion.
Share buyback
Kogan announced that it intends to undertake an on-market share buyback of up to a maximum of 10% of issued ordinary shares, starting 12 May 2023.
Management decided to do this because of its return to positive adjusted EBITDA, strong balance sheet, positive net cash position, increasingly inventory light-business model, efficiencies created and expected in operating costs, and improvement in gross profit margins caused by the growing contribution from commission-based revenue streams.
Final thoughts on the Kogan share price
Kogan has gone through a lot of difficulties, and it’s not the same business it was three years ago. But, returning to profitability is a key step for the ASX share. I don’t know what will happen next for the business, particularly if sales keep falling.
But, I hope for Kogan’s sake it’s able to maintain and grow its profitability, which could be a real boost for the Kogan share price.
