Is Booktopia turning the page in 2023? Shares soar 34% on $12-$15 million strategy goal
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Investors have reacted positively to news online book retailer Booktopia Group Limited (ASX: BKG) will initiate measures to improve shareholder returns amid greater competition and rising inflation.
BKG saw its share price soar ~34% yesterday to 27.5 cents/share, not seen since September 2022 after announcing plans to improve earnings and reduce costs over the next 18 months.
It was a story filled with drama for BKG in 2022 with the resignation of its CEO and co-founder Tony Nash and an ACCC penalty.
Nash was dumped as CEO in July by the board of the company he founded 18 years ago following a tough year for the online retailer.
Current CFO Geoff Stalley was appointed as the interim CEO. Then in November the company’s four independent directors including the chairman tendered their resignations.
BKG experienced a drop in FY22 underlying earnings as restructuring costs in the wake of a challenging business environment also took a toll on the company.
The drop in earnings and boardroom battles hit BKG’s share price which dropped from highs of $3 in August 21 to lows of 17 cents mid-year.
Former chairman Chris Beare addressed shareholders at the 2022 AGM, acknowledging the struggles BKG had been facing, describing the financial year as “one of the most challenging in Booktopia’s 18-year history“.
In December, BKG announced new board members and a new chairman Peter George. Nash remains on the board as an executive director.
Following the review, BKG has implemented several initiatives that are expected to deliver approximately $12-15 million of annualised improvements to its earnings to be primarily realised in FY24 and beyond.
The big one which made headlines yesterday was 30 to 40 redundancies, representing 10-15% of its staff, and resulting in $4-5m in annualised cost savings.
The company joins other tech giants including Google to lay off staff in a a tough economic environment.
Other initiatives include adjusting the pricing on various products to reflect increasing costs and improve overall gross margins.
The company forecasts the adjustment will result in $2-3 million in annual earnings improvement.
BKG is set to change how it recovers third-party delivery costs, to pull back in a $4-$5 million annualised earnings improvement.
BKG is also working on optimising its advertising program to focus more on high-conversion channels, which is forecast to deliver $1-2 million annually.
Also included in the plan is the previously announced sale of the Australia and New Zealand arm of Welbeck Publishing Group (Welbeck ANZ), resulting in a cash payment of $1.5 million and no further costs or obligations associated with the investment.
BKG is also reducing its lease obligations which it forecasts will result in $2-3m of annualised cost savings.
The company will bid farewell to its Lidcombe building in Sydney and transition to its “Next Gen Customer Fulfilment Centre (CFC)”, described as critical to the ongoing and future growth of the business.
BKG announced in August that it had signed a lease for a new 20,000sqm CFC at South Strathfield in Sydney’s west.
Chairman Peter George said: “Booktopia is focused on building a profitable, sustainable business in the interests of all stakeholders and is committed to delivering the Next Gen CFC in 2023 which will position the company for the challenging online retail conditions in the near term.”
“Letting some of our talented staff go as part of these cost cutting iniatives is a disappointing but necessary step in these economic times.”
Power Retail founder and CEO Grant Arnott was bullish on the stock back in September and told Stockhead in the current environment, investors welcome cost-cutting measures to focus on profitability.
“There’s been a long extended period of overspending in the tech sector and investors are demanding light-size businesses going forward.
“You can understand prior management of the business perhaps having some sentiment or reluctance to cut costs or, when it comes to talent, certain individuals.
“Perhaps the ruthless approach under new management is what’s required and clearly it’s been well received by shareholders.”
Power Retail provides data and insights resources into e-commerce companies in Australia.
A spokesman for Booktopia said the company would not be commenting further on the strategy at this time.
The BKG share price is up 37.50% 2023 year to date.