VALUABLE LESSONS: Kogan.com's share price tanks as FY21 earnings fall well below expectations

Shares in online retailer Kogan.com have plunged more than 13% to below $9 in opening trade on Friday after the company slashed its FY2021 earnings below market expectations in its latest trading update.

While the business declined to offer forward guidance during its half-yearly results in February, today the business (ASX: KGN) said it expects its FY21 EBITDA (earnings before interest, tax, depreciation and amortisation) to be between $58 million and $63 million.

Market expectations sat between $67m and $72m.

Last month the company warned of headwinds due to excess inventory and slower sales, which collided with the Kogan’s rapid growth plans.

Kogan.com co-founder and CEO Ruslan Kogan

At the time the ASX requested for greater transparency and clarity around the Kogan Group’s trading figures following the April 23 market update, which revealed $3.9 million in warehousing charges for excess inventory and Q3 fall in EBITDA for Kogan.com of more than 42% to $5.5 million. The company’s overall EBITDA, which includes New Zealand e-tailer Mighty Ape, dropped 24.8% to $7.2m.

Today the retailer said that while it had “effectively doubled in size” in the first half of FY21 – to 31 facilities, many set up in the last five months, it “has had to progressively resolve the operational challenges that come with this growth”.

“This rapid expansion has resulted in a number of near-term supply chain inefficiencies and inventory planning challenges, all of which are being addressed to optimise operations going forward,” the update said.

“The company has learnt valuable lessons over the last few months, including many key strategies on how to better scale operations of a large fast-growing e-commerce company.”

To get rid of the excess stock, the business ramped up discounting and marketing, eating into its margins amid increased marketing costs. The inventory levels are expected to fall to more normal levels over the coming few months.

At the same time, the price of many core products being ordered for the 2021 Christmas period have jumped alongside inflation in international shipping costs.

“Customer demand in April 2021 remained consistent with the levels seen in the three months to March 2021, and below the levels seen in the nine months to December 2020,” the company said.

In August last year, Kogan.com co-founders Ruslan Kogan and CFO David Shafer sold a 6.9% stake in the business, worth around $160 million, following the FY20 results, offloading 7.3 million shares at between $21.60 and $22.25.

Following a peak of $25.57 in October 2020, the share price has now lost nearly two-thirds of its value to a 12-month low of $8.77.

KGN’s share price over the last 7 months. Source: CommSec

It its statement to the ASX, Kogan.com said its longer term fundamentals “remain very attractive”.

“The Board looks to the future with confidence as the business has invested in key strategic initiatives and has a strong level of in-demand inventory heading into the first half of FY22 while observing price inflation through global supply chains,” it said.