The Cettire Ltd (ASX: CTT) share price has sunk almost 40% after giving the market an update for FY24.
Cettire is a global online retailer of luxury goods through its website. It has a catalogue of more than 2,500 luxury brands and 500,000 products of clothing, shoes, bags and accessories.
Weak FY24 update
The company revealed it has experienced “strong, broad-based” revenue during the fourth quarter of FY24, driving “increased penetration and market share”.
It’s expecting to report “significant” year on year growth in active customers, sales, adjusted EBITDA and cash. The company also revealed the gross revenue contribution from repeat customers has “increased” over the course of the year.
However, over the last several weeks, the operating environment within the global online luxury space has “become more challenging”, with multiple listed luxury businesses describing “softening demand trends and increased promotional activity”, leading to a “tougher margin environment”. Cettire has also been impacted by these developments.
Cettire is expecting to report FY24 sales of between 77% to 79% to $735 million to $745 million. However, adjusted EBITDA is only expected to grow by between 24% to 36% to between $32 million to $35 million.
Cettire said it had “selectively participated” in promotional activity, leading to an increase in marketing costs relative to sales and a decline in the delivered margin percentage. Lower profit margins seem to be bad news for the Cettire share price.
Chinese launch
The company also announced it had launched its direct platform in mainland China on 23 June and it’s already processing orders.
Management said China is important because it’s the world’s largest luxury market.
Cettire said it would be “measured” in its approach in the market and broaden its channel proposition over time as it builds a presence.
Management commentary
The Cettire founder and CEO Dean Mintz said:
Despite a recent softening of market conditions, the overall opportunity in online luxury remains compelling, supported by industry consolidation.
Cettire is well positioned to capitalise on the opportunity in online luxury given the resilience and flexibility of its business, which is underpinned by a large and diverse supply chain, geographic diversity and a capital light model with minimal inventory risk.
The company continues to grow rapidly, is profitable and cash generative. Cettire has access to extensive inventory levels and remains focused on maximising profitable revenue growth, whilst also self-funding.
Final thoughts on the Cettire share price
It seems the market is reacting strongly to the prospect of reduced profitability.
The company may have been able to justify a high valuation before because big revenue growth was coming with rapid profit growth, but that doesn’t seem to be the case right now.
I’m not sure what Cettire’s profit margins can be in the coming years, so I’d want to look at other ASX growth shares for now.
