Home / ASX / Slowing sales, too much inventory biting Kogan

The Kogan.com Ltd (ASX: KGN) share price is currently down 13% after reporting a difficult six months in the first half of FY22.

Kogan is one of the leading e-commerce platforms in Australia. It sells a wide array of goods like toys, electronics, clothes and appliances. Kogan also offers things like mobile and energy services.

Kogan’s HY22 result

Here are some of the key highlights from the result:

• Gross sales up 9.4% to $698 million
• Revenue up 1.3% to $419.5 million
• Kogan Group active customers of 4.07 million, up 9.4%
• Gross profit down 8.1% to $108.1 million
• Adjusted/underlying EBITDA of $17.4 million
• Statutory EBITDA loss of $2 million
• Underlying net profit after tax (NPAT) of $4.8 million
• Statutory net loss of $11 million
• No dividend. The cash is being used for growth instead

The company’s inventory issues and lower demand for e-commerce came through in this report. But it has also been spending on marketing to grow the business.

Kogan has continued to invest in marketing to help grow customers and Kogan First members. This could be helpful for the Kogan share price over time, as the added scale should be useful for operating leverage.

Exclusive brands and third-party brands did very well last year; there was a decline in revenue of 11.2% and 33.5% respectively.

Kogan Marketplace (where third-parties like brands or retailers can sell products) saw gross sales rise 28.7%.

Kogan First reached 274,000 subscribers at 31 December 2021. These members show stronger loyalty and repeat purchasing. By February 2022, Kogan First subscribers had reached more than 310,000.

Not only is Kogan reaching more customers, but it is increasing the number of products on the site to offer more choice.

Different ‘verticals’ also saw growth like Kogan Mobile New Zealand, Kogan Credit Cards and Kogan Energy.

Market share growth

The Australian online retail market continues to grow. In FY19 it was $26.8 billion, in FY20 it was worth $32.5 billion and then in FY21 it grew to $44 billion.

Not only is Kogan’s sector growing, it is increasing its product ranges and Kogan’s market share is rising too. In FY19 the Kogan market share was 2.1%, in FY20 it was 2.4% and in FY21 it was 2.7%.

Long-term goals

Over the next five years, Kogan wants to reach gross sales of $3 billion, with 1,000,000 Kogan First subscribers. I think that the Kogan First subscriber growth could be key, as more customers should mean more shopping. Scale will naturally help the overall business and margins, assuming management can effectively manage the growth.

Final thoughts on the Kogan share price and result

Kogan outlined a number of things it’s expecting in the FY22 second half: more growth of Kogan First subscribers, continued growth of Kogan marketplace, a strong contribution (but not growth?) from exclusive brands, growth of the New Zealand Mighty Ape business and improved operating leverage.

It revealed that January 2022 showed gross sales growth of 11.9% year on year.

I think the most important change for Kogan in the second half would be growth of profit margins. It’s still growing the top line, but the market wants to see that profitability is returning after all of these COVID impacts.

As I wrote yesterday, “I think Kogan could still turn out good – shoppers want products at a good price. It’s up to Kogan to be able to capture the economic benefits of that.”  But there wasn’t much sign of a profit turnaround (yet). But in six months, we may see that in the FY22 result when the second-half performance is revealed.

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