Adore Beauty shares crash despite posting record $200m revenue from dedicated customer base

Adore Beauty shares crash despite posting record $200m revenue from dedicated customer base

Adore Beauty launched its first in-house brand Viviology during FY22 (via Adore Beauty).

Online cosmetics retailer Adore Beauty (ASX: ABY) has delivered record revenue of $200 million in FY22, driven by returning customers that are generating “subscription-like retention rates” for the company.

Adore, which also posted a 181 per cent increase in profits to $2.34 million for the financial year, notes that the period benefitted from most of the country being in lockdown during 1H22.

As such, ABY says growth comparisons are volatile, and that trading in the first seven weeks of FY23 reflects this with revenue down 28 per cent on the prior corresponding period.

Shares in ABY have crashed upon opening today, down nearly 16 per cent at the time of writing to $1.55 per share, continuing the downward trend that has plagued the e-commerce player’s stock price since it listed on the ASX in October 20202.

Upon listing, Melbourne-based Adore was trading at close to $7 per share and had a market capitalisation of $653 million. Today the company is worth just a quarter of its initial valuation at around $146 million.

Nevertheless, CEO Tennealle O’Shannessy, who will leave the company in February 2023 for a new gig at IDP Education (ASX: IEL), said the full year was successful for Adore.

“Our changing active customer base now has a higher proportion of returning than new customers, with subscription-like retention rates after just two years on the platform. This highlights the resilience and future potential of Adore Beauty’s business,” O’Shannessy said.

“Our highly engaged and loyal returning customers are reflective of the broader premium beauty category, where customers are brand loyal, shop with beauty specialists and frequently re-purchase skin and hair products they use daily and consider essential.

“Our investments in strategic priorities are contributing to improved customer retention and lifetime value, and will drive sustainable, long-term growth as online adoption in Australia’s beauty and personal care market catches up to the UK, USA, and China. The online leader in each of these markets has taken a disproportionate share of growth as e-commerce penetration increases. As Australia’s incumbent, we are best placed to grow customers, revenue, and margins as our market matures.”

During FY22 Adore’s active customer base increased to 872,000 people, up by 7 per cent on FY21, while returning customers rose to 472,000, up 31 per cent on the prior corresponding period. The group’s EBITDA fell during the financial year, down 30 per cent to $5.3 million.

The results come off the back of freshly implemented strategic initiatives, put in place to scale revenues, grow its customer base, retain new customers and drive profitability.

In June, the company launched its own skincare brand Viviology, and Adore says its sales in the first month exceeded internal expectations.

Further, the company is scaling its adjacent product categories, with fragrance and Korean beauty now accounting for 4.1 per cent and 2.5 per cent of total revenue respectively.

Adore also says its mobile app is scaling well, contributing 7.7 per cent of revenue in the first quarter of the financial year and doubling to 15.5 per cent by the fourth quarter.

“Our strategy is working, driving customer metric improvements throughout FY22, and positioning the business for sustainable long-term growth. Our scaling mobile app, loyalty program, and adjacencies directly support and drive revenue growth, retention, and lifetime value, and will continue to deliver benefits going forward,” O’Shannessy said.

“The successful launch of our first owned brand, Viviology, has diversified our revenue and margin profile. Sales in the first month exceeded our internal expectations, and we are on track to launch our second owned product offering later in the calendar year.”

The company says it has a “healthy” cash balance of $29.8 million as at 30 June, while inventory levels are higher than the prior corresponding period to support growth.

Citing the pressures of inflation impacting employee, freight and marketing costs, Adore says it does not expect to achieve an EBITDA margin of 2-4 per cent in FY23, but does anticipate it will remain profitable on a full year basis.

“Longer-term, Adore Beauty expects to continue to benefit from the structural shift to e-commerce, which combined with high levels of customer retention and growing brand awareness, positions the Company for strong future growth,” says Adore.

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