Online retailer Kogan [ASX:KGN] says its period of consolidation is over after the company reported growth in quarterly sales for the first time since Q1FY22. Investors were excited by today’s unaudited release, sending shares up 7.16% to $4.80.
This was seen as a significant turning point for the company which has faced a challenging couple of years, failing to replicate its growth seen through the lockdown period when consumers pulled out their credit cards and went on an online shopping binge.
Through the Australian lockdowns, the company saw a 91% increase in its online marketplace sales, which netted a 52% increase in sales for FY21.
However, through the next two financial years — as consumers changed spending habits to favour eating out and travel— the company saw sales numbers fall and margins drop as inventory stacked up.
The share price is down over 80% from its October 2020 high but has regained momentum this year, up 45.3% in the past 12 months.
First quarter highlights
During the three months ending 30 September, the e-commerce retailer saw its first increase in gross sales, with a $4.2 million increase from the previous quarter — a modest 2.3% increase but signalled a reversal in trajectory for the company.
Gross sales of $189.2 million reflected a 6.5% decline year-over-year (YoY), but Kogan emphasised that this decrease was mainly due to the absence of the seasonal boost from events like Black Friday and Christmas trading and a 45% YoY drop in inventory.
Kogan also saw its gross margins increase by an impressive 9.8% to reach 36.3% after sliding in recent years.
Kogan.com attributed this margin growth to the successful ‘sell-through’ of excess inventory and the increasing proportion of platform-based sales, which accounted for 65% of gross sales and 75% of gross profit.
Founder and CEO, Ruslan Kogan, said today that the sales growth signalled the company’s period of consolidation had concluded.
He went on to say:
‘This most recent quarter has been full of excitement for Kogan.com. In addition to returning the Business to a position of continuous profitability growth and financial strength, we’ve been busy delivering new ways to delight our customers…’
‘As we now approach the busiest time of the year with Black Friday, Christmas and Boxing Day, our team recognises that many of our millions of Aussie and Kiwi customers are continuing to face cost of living pressures. We are confident that the incredible deals we have lined up over the coming months will help in these tough economic times…’
The company also grew its active customers to 2.86 million and added 55,000 customers to its Kogan First subscribers since 30 September 2022.
Kogan First follows a similar discount model to Amazon Prime and currently has 440,000 subscribers.
Outlook for Kogan
Investors seemed to agree with the company’s positive outlook on the quarterly results as things appear to be well lined up for the company to bring strong profits this quarter.
With Black Friday on 24 November and Christmas just around the corner, Kogan should hopefully pull in quarterly sales above $250 million.
The company’s journey in the past couple of years has been marked by volatility and market headwinds largely outside of Kogan’s control, but it appears to have managed the down years well.
The company maintains a healthy cash position with $56.8 million and no external debt. Their cash position and slimmer inventory moving into the end of the calendar year should set them up to profit this quarter and robust investment into the new year.
So far, much of that investment in recent years has gone into their New Zealand-focused marketplace, Mighty Ape. With 0.6% growth in sales totalling $35.4 million, the monkey is far from mighty at this point.
However, recessionary winds have blown through the NZ market, and discretionary spending is still tight.
The company has also launched Kogan Energy and Kogan Internet and mobile services. At this stage, only its mobile services are seeing growth, and these projects could be distracting leadership from its core goals of cost-competitive e-commerce.
Future simplification may be required, but for now, the company looks in good stead to offer returns for shareholders in the coming quarter.
Remember these shareholder returns are never guaranteed— things can change quickly in the retail space.
Today’s market reaction to inflation data is an excellent example of that.
Where to look when markets shake
If you’re unsure where the market will go, you must seek veteran insight and experience.
Fat Tail Editor Murray Dawes has seen these kinds of markets before and understands the longer game that many miss.
Murray has been the translator for the markets movement for many over the years, and none is better at patiently waiting for the time to strike.
Murray thinks he has also found an investment window for savvy traders that he is sharing, along with a special half-price offer here.
In his Retirement Trader service, Murray will give you all the insights and find opportunities to handle whatever the new year throws at us.
Whatever you’re looking for, we can promise that he’ll provide a unique angle.
For Money Morning