Kogan.com profits sink as online shopping slows

Kogan shares were thumped on Friday, slumping almost 13 per cent to below $4. They soared to almost $25 in October 2020 as a structural shift to online shopping accelerated in the first year of the COVID-19 pandemic, giving the group a sharemarket capitalization of $2.6 billion at the time.

But the share price has unraveled fast over the past few months. Mr Kogan started the business 15 years ago from the garage of his parents’ home in Melbourne. It listed on the ASX in 2016.

Jarden analyst Wassim Kisirwani described it as a “weak” trading update which was below his estimates. RBC Capital Markets analyst Wei-Weng Chen said the figures showed a “sharp decline” in trading towards the end of the March quarter.

Other pure-play online retailers, including furniture and homewares group Temple & Webster, have also suffered steep declines on the sharemarket. Temple & Webster shares were almost 5 per cent lower on Friday to $5.85 by mid-afternoon compared with a high of $14.71 on August 30.

The company sources furniture and homewares from more than 100 factories, mainly in Asia, and has more than 200,000 individual products in its range which means shipping costs and higher freight rates are a big consideration for investors.

Another group which has had a big fall on the ASX is Cettire, which operates a luxury retail sales platform.

Similar trends are hurting online retailers in the United States, where industry giant Amazon has been suffering heavy declines in its share price following the company’s first quarterly loss in seven years.

Amazon’s March-quarter sales growth of 7 per cent was its weakest quarterly number since 2001, with the company outlining that e-commerce sales were down 3 per cent year-on-year. Free cashflow reversed to negative $US19 billion ($26.7 billion) from $US26 billion in the year-earlier period. Amazon’s 18 per cent stake in electric vehicle start-up Rivian, which is listed on the New York Stock Exchange, was also a big drag.

Kogan.com said the number of active customers across the entire business was up 3.6 per cent to 4.1 million customers in the March quarter compared with a year ago.

The company’s gross profit fell 11 per cent to $41 million, and gross sales were 3.8 per cent lower at $262 million.

At an adjusted earnings before interest, tax, depreciation and amortization level, the overall business made a loss of $800,000 in the March quarter. The Kogan.com e-commerce unit made a loss of $3.5 million at an adjusted EBITDA level, but this was partially offset by the Mighty Ape business in New Zealand which made a profit of $2.8 million.

In its March quarter trading update, inventory levels were still high at $194 million, made up of $170 million in warehouses and $24 million in transit. Mr Kogan said there had been a reduction in inventory levels in transit. Kogan has 29 warehouses in Australia and New Zealand.

Inventory levels at December 31 were at $197 million, after having ballooned to $228 million at June 30 last year.

Kogan.com has tried to strike a balance between bringing in extra products as a buffer against the creaking global supply chains, but this has been a drag on profits.

Demand jumped among online shoppers during the lockdowns in Sydney and Melbourne from July to October last year. But that also brought some extra headaches for customers across the industry because of delays in deliveries to customers.

Kogan.com set up an in-house delivery service last year to try to limit customer frustrations over delays caused by the industry-wide logjams as its main delivery operator, Australia Post, grappled with rising demand.

The new “last-mile” Kogan Delivery Services arm was tested initially in Melbourne, Sydney and Brisbane and has been scaled up.

Mighty Ape has started a new last-mile delivery service in New Zealand called Jungle Express that allows customer to track orders after they have left warehouses.

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