Online shopping

Kogan.com profits plummet as online shopping slows

Shares of Kogan took a beating on Friday, falling nearly 13% to below $4. They soared to nearly $25 in October 2020 as a structural shift towards online shopping accelerated in the first year of the COVID-19 pandemic, giving the group a market capitalization of 2.6. billions of dollars at the time.

But the stock price has collapsed rapidly over the past few months. Mr Kogan started the business 15 years ago in the garage of his parents’ home in Melbourne. It was listed on the ASX in 2016.

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

Other pure online retailers, including Temple furniture and homewares group & Webster, also suffered sharp declines in the stock market. Shares of Temple & Webster were down nearly 5% on Friday at $5.85 by mid-afternoon, from a high of $14.71 on Aug. 30.

The company sources furniture and homewares from over 100 factories, mostly in Asia, and has over 200,000 individual products in its range, which means higher shipping costs and freight rates are an important consideration for investors.

Another group that has seen a steep fall on the ASX is Cettire, which operates a luxury retail platform.

Similar trends are hurting online retailers in the United States, where industry giant Amazon suffered sharp declines in its share price after the company’s first quarterly loss in seven years.

Amazon’s March quarter sales growth of 7% was its weakest quarterly figure since 2001, with the company pointing out that e-commerce sales were down 3% year-over-year. Free cash flow reversed to US$19 billion ($26.7 billion) from US$26 billion a year earlier. Amazon’s 18% stake in New York Stock Exchange-listed electric vehicle startup Rivian was also a big drag.

Kogan.com said the number of active customers across the company increased 3.6% to 4.1 million customers in the March quarter from a year ago.

The company’s gross profit fell 11% to $41 million, and gross sales fell 3.8% to $262 million.

At the adjusted level of earnings before interest, taxes, depreciation and amortization, the entire company posted a loss of $800,000 in the March quarter. E-commerce unit Kogan.com posted a loss of $3.5 million in Adjusted EBITDA, but this was partially offset by the Mighty Ape business in New Zealand which posted a profit of $2.8 million.

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

Inventory levels as of December 31 were $197 million, after climbing to $228 million as of June 30 last year.

Kogan.com tried to strike a balance between bringing in additional products as a buffer against creaky global supply chains, but it hurt profits.

Demand surged among online shoppers during lockdowns in Sydney and Melbourne from July to October last year. But it has also caused additional headaches for customers across the industry due to delays in customer deliveries.

Kogan.com set up an in-house delivery service last year in an attempt to curb customer frustration over delays caused by industry-wide traffic jams as its main delivery operator, Australia Post, faced growing demand.

Kogan’s new ‘last mile’ branch of Delivery Services was initially piloted in Melbourne, Sydney and Brisbane and has been expanded.

Mighty Ape has launched a new last mile delivery service in New Zealand called Jungle Express which allows customers to track orders after they leave warehouses.