Kogan.com gets belted again as ecommerce leaders adjust to post-COVID reality
The negative re-rating in high profile ecommerce stocks has continued, following an earnings downgrade by Kogan.com (ASX:KGN) today.
KGN flagged ongoing issues in inventory management stemming from its rapid post-COVID growth in 2020 as a core challenge to its current outlook.
Having already fallen from January highs above $20 to around $10 a share, KGN got belted again this morning leaving the stock on track to close below $9 for the first time since May last year.
In some good news for the broader sector, preliminary data this morning showed retail sales in April grew by 1.1 per cent, beating expectations for a 0.5pc gain.
Consumer confidence also remains elevated at decade-highs, supporting the outlook for domestic consumption.
The challenge now for some listed ecommerce plays is to find the balance between capital investment and stock management, while the market responds to a fall in comparable growth rates from the unusual market conditions in 2020.
Kogan.com said that in response to that demand, it has effectively doubled the size of its business this year and added 31 new storage facilities, “many of which were established over the last five months”.
However, it flagged problems when it came to building out that footprint and optimising business operations at the same time.
The company said monthly sales growth in April was consistent with the March quarter, but “below the levels seen in the nine months to December 2020”.
It’s now stuck with excess inventory that it acquired to meet those previous growth rates. That means discounts and extra marketing spend are required to move it, which means margins get cramped.
At its current price below $9, Kogan.com has now fallen below the $11.45 offer price at which it raised $100m from investors in June 2020, when the post-COVID scale-up was in full effect.
Similar challenges have been faced by fellow ecommerce market-darling RedBubble (ASX:RBL), which rose from pandemic crisis lows beneath 50c to a high of $7 at the start of this year.
As growth rates cooled, the company flagged further investment plans on April 22 that it said would leave it positioned for more sustainable growth over the long-term — plans which “may lead to some short term reduction in EBITDA margins”.
After opening that day at $5.51, RBL shares closed at $4.24 and are currently trading around $3.50 after a ~3.5pc drop this morning.
BNPL, another poster child for the post-COVID economy, has also been under pressure although market leader Afterpay (ASX:APT) is on track for its fifth gain in six days.
As a result of its operating challenges, KGN said it now expects adjusted core earnings for the 2021 financial year to be in a range between $58 million to $63 million.
The company reiterated the observation from its April update that it continues to see examples of inflationary uplift in both international shipping costs, and the price of goods ‘currently being planned for reorder in advance of the peak Christmas trading period”.