News & Analysis

Kogan.com just had its best Christmas trading, but its shares are getting smashed as profit growth slows

- January 20, 2020 3 MIN READ
Ruslan Kogan. supplied

 

• Gross sales grew by more than 16%
• Gross profit grew by more than 9%
• Operating costs declined marginally
• Cash at period end was $34.1 million

Kogan.com Ltd (ASX: KGN) has defied tough retail conditions to post a record half-yearly result helped by its best-ever Black Friday and Boxing Day trading according to its half-year trading update released today, but the online retailer’s profit growth slowed in the December quarter, despite the roll out of a range of new products.

As the company bets on Kogan Marketplace as central to its growth strategy, investors were unimpressed with the start of “confession season” for listed companies, with Kogan.com’s most recent performance and its share price was hammered in early Monday trade, down more than 20% ($1.64) to $6.30. 

The company’s unaudited management accounts for 1HFY20 show that gross sales grew by more than 16% and gross profit grew by more than 9% in the six months to December 2019, compared to the corresponding period 12 months ago.

Kogan.com’s active customers increased by more than 10% year-on-year to 1,699,000 to end 2019, and Kogan Marketplace gross sales in 2QFY20 grew by more than 44% on the prior quarter.

Kogan Marketplace growth. Source: Kogan.com

In the company statement to the ASX, Kogan.com founder and CEO, Ruslan Kogan, said the business had a record number of customers during the key Christmas sales periods.

“We are proud to have delivered another record half in Gross Sales and Gross Profit, all while undertaking significant investments into the future of the business. The projects that we have rolled out in 2019 will pave the way for the business over the coming years — these include Kogan Marketplace, Kogan First, Kogan Credit Cards and Kogan Energy,” he said.

“As we introduce new sellers to the Kogan Marketplace, and rapidly grow that division, we are undergoing a period of transition to an e-Commerce company that is no longer constrained by inventory and is capable of infinite growth without additional capital. In the long term, this creates huge benefits to both our customers and our shareholders as we build one of the major e-Commerce marketplaces in Australia and New Zealand.

“We’re just at the very beginning of seeing the benefits from our major investments in warehousing and infrastructure for faster delivery, in Kogan Marketplace for greater product variety, Kogan First for rewarding loyal customers, and more.”

The online retailer said advertising income contributed more than $2 million to gross profit, while the year-on-year reduction in marketing costs of more than 25%. Overall operating costs (Marketing, Variable, People and Other Costs) reduced year-on-year.

However, there was an unrealised material foreign exchange loss on forward contracts outstanding as at 31 December 2019, and third-party brands declined materially year-on-year due in part to the growth of Kogan Marketplace.  Exclusive brands grew by more than 17%.

Kogan First, the company’s $99 annual membership, which offers free shipping, free upgrades to express shipping and discounts, grew rapidly, with the company saying Kogan First members received more than $1 million in additional benefits since the program began.

Kogan Credit Cards and Kogan Energy “are growing strongly” since their launch in the half, while Kogan Mobile Australia active customers were up more than 5% to end the half, Kogan Internet active customers grew by more than 340% and Kogan Insurance revenue was up by more than 40%.

Inventories were $94.2 million as at 31 December 2019, with $81.1m of inventory in warehouse and $13.1m inventory in transit. Inventory turn improved on the prior half.

Cash was $34.1 million as at 31 December 2019.

Kogan.com’s portfolio of retail and services businesses includes Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Internet, Kogan Insurance, Kogan Travel, Kogan Money, Kogan Cars and Kogan Energy.

The business listed on the ASX in 2016, having been founded in 2006.

 

Editor’s note: Kogan.com shares fell 23% on Monday to $6.18, and fell a further 7.3% on Tuesday to $5.73. 

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