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Kogan (ASX:KGN) share price rises on large profit jump

The Ltd (ASX: KGN) share price has gone up in early reaction to a pleasing business update for FY23.

FY23 second half performance

Kogan said that its gross sales fell by 22.5% year on year to $373.7 million in the second half of FY23. This reflected “soft market conditions” caused by inflation, interest rates and the realigning of the inventory levels in the business.

Management believe that gross sales will grow in FY24 – that sounds good for operating leverage and the Kogan share price.

The gross profit margin in the second half improved by nine percentage points year over year, which is a large rise, underpinned by the “removal of excess inventory.”

Kogan also said it became more efficient with its operations. Total variable and marketing costs as a percentage of gross sales reduced to 8.6% in the second half of FY23, compared to 9.2% in the second half of FY22. Operational efficiency improvements are “expected to continue into FY24”.

Adjusted EBITDA (EBITDA explained) was $11.2 million for the FY23 second half, up from $1.6 million in the FY22 second half. FY23 fourth quarter EBITDA was $6.8 million, while third quarter EBITDA was $4.4 million and second quarter EBITDA was a loss of $4.1 million.

Adjusted EBIT was $3 million in the FY23 second half, compared to a loss of $8.3 million in the FY22 second half. This is very promising for the future Kogan share price if EBIT can keep going up.

Inventory was down 57% over the 12 months to $68.2 million (after paying all bank debt), while net cash improved by $34.2 million to $65.4 million.

Management commentary

The Kogan CEO and founder Ruslan Kogan said:

It has been an important year for as we drove efficiency through our business. Frugality, relentless pursuit of continuous improvement, data-driven decisions, and tough negotiations on behalf of our customers are all traits that are in our DNA. It’s what we do day in, day out.

Final thoughts on the Kogan share price

The e-commerce ASX share has gone on an excellent run since the start of the year, it’s up more than 70%!

I’m not sure it can sustainably go up much more during this year with the uncertain retail outlook and the fairly limited profit generation at this stage.

But, its business model – of offering an online shopping platform – should be able to do well if its profit margins can keep rising. Profitable sales are very important for Kogan, as we’ve seen over the last two years (and how things have gone wrong).

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