Kogan [ASX:KGN] Eyes Up Return to Profitability

First thing Monday morning, electronics and energy retailer Kogan.com [ASX:KGN] updated markets on inventory levels, which had been largely impacted by oversupply during the pandemic.

Now the retailer says its business is back on track to reach its return to profitability in FY23 with excess of inventory close to resolved, and January already churning a profit.

Kogan managed to reduce its inventories to $98.3 million and reported growth in net cash to $74 million by the end of 2022.

Shares for KGN were relatively flat this morning, unable to lift the stock from its 23% decrease in the past month and 34.5% drop across the last 12 months:

www.TradingView.com

Kogan ready to benefit from inventory improvement

Kogan is well and truly chasing profitability for 2023, having already ticked off a rewarding January, giving the company confidence its target is achievable.

Having cycled through inventory backlogs, the company has managed to reduce its inventories to $98.3 million.

Back in June, Kogan had $159.9 million in inventory excess, marking the bulk of its inventory issues now mostly resolved.

However, shareholders were not as cheerful, as the update also showed the company’s most recent period still reflected all-round losses year-on-year.

Gross sales and revenue had declined 32.5% and 34.3%, respectively, with $471.1 million and $275.6 million in each. Gross profit fell 42.8% with a total of $62.9 million.

The fact remains the company has still suffered performance impact on the cycling of COVD-19-related lockdowns and subdued sales in 2022.

Profitability also took a hit from ‘unprecedented discounting’, which was required to resolve the inventory situation.

Adjusted EBITDA was down $4.4 million, EBITDA down $23 million, and adjusted NPAT (net profit after tax) came to -$9.6 million.

On reflection of the above, earnings per share had also dropped 22 cents.

It wasn’t all bad news though, Kogan’s loyalty program managed a revenue increase of 83.1% with $10.8 million, and Mighty Ape recorded 1HFY23 revenue of $86.4 million, $21.6 million in gross profit.

KGN’s CEO Ruslan Kogan said:

‘We’re pleased to be emerging from a turbulent few years. The ship has steadied, we have a renewed focus on the ruthless efficiency that’s underpinned our entire existence, and we have doubled down on delivering great value for customers.

‘The first half delivered on multiple fronts. We were pleased to welcome 500,000 Brosa subscribers to the Kogan.com community following our acquisition of one of Australia’s largest online furniture retailers.

‘We look forward to the second half of this financial year with confidence. We have reset Kogan.com for success, and in doing so, have ensured we continue to delight our millions of Customers during these challenging times.’

As mentioned, Kogan is optimistic with January 2023 metrics looking strong, firm in the belief this is setting the scene for the return to adjusted EBITDA profitability in 2HFY23.

In January, the company’s gross margin was up 7.9 pp year-on-year and a return to positive adjusted EBITDA was achieved ($1.5 million), despite gross sales being down 33.2% year-on-year ($68.38 million).

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For Money Morning