Booktopia cuts earnings guidance by $10.5m, prompting strategic review

While the rise of social media communities like BookTok may have played a part in year-on-year revenue growth for Australian online bookseller Booktopia (ASX: BKG) over the Black Friday sales period, higher costs from a transition to a new fulfilment centre have taken a sledgehammer to expected earnings for FY24.

The Sydney-headquartered company's shares plunged more than 11 per cent today to 5.5 cents per share after announcing underlying EBITDA forecasts had been cut from $13.5 million to a range of $1-3 million.

This 77 per cent drop in earnings if Booktopia achieves the upper end of guidance has prompted a strategic review of the business to "explore all options to accelerate a return to acceptable earnings".

Booktopia notes temporary challenges with the transition into its new customer fulfilment centre (CFC), producing a negative impact on sales revenue in the December half due to a decrease in volumes of inventory that the company could hold.

These constraints led to many products being out of stock for extended periods, which Booktopia admits meant "customer promise was also compromised".

"Costs were also impacted, most notably with integration of the new technology into its systems and processes. These included delays with its new robotic technology undertaking a key function of delivering received items to be put away on shelves and with the ability to cross dock," the company said in today's release.

"These issues have been, or are in the process of being, resolved. A significant portion of these costs have been adjusted in determining the underlying EBITDA.

"The CFC cost per unit was higher than forecast in H1 with additional labour required to provide a greater customer experience."

Booktopia notes its targeted level of productivity is taking longer than anticipated to deliver, but the team is focused on the execution of several initiatives over the next few months which is required to achieve the financial targets in the company's business plan.

"As such, despite the initial challenges, the company remains optimistic about its future performance as the CFC is bedded in," the company said.

"EBITDA would have improved by a further $2m had the Company not incurred the additional labour costs incurred during the transition and optimisation phase of the new CFC.

"During this phase, the labour cost was averaging $1.98 per unit, and has now stabilised at $1.30 per unit with further improvements anticipated. The Group saw revenue growth year-on-year during the increasingly important Black Friday retail period. It has also seen customer basket sizes increase during the first half despite cost-of-living pressures, a stabilisation in its active customer base and growth in its Booktopia Publisher Services division, providing positive foundations for the business moving forward."

A report published in October last year by GfK Entertainment and Nielsen BookData found that while global revenue from book sales was up in 2023, Australia saw a 1.9 per cent drop.

There have been significant shake-ups in the sector over the past 12 months, starting with the shutdown of Amazon subsidiary Book Depository in April, while more recently audiobooks have become much more accessible to a large audience with Spotify Premium subscribers now being able to listen to 15 free hours from an extensive library of content; a move that throws down the gauntlet to Amazon's Audible service.

Here in Australia, Sydney-based book marketplace startup Ourlit is set to make its online platform live in March, bringing the culture of op-shop and second-hand book shopping to the online arena, giving readers the chance to sell and buy books at more affordable prices.