Kogan books first December half loss since IPO

Online retailer Kogan (ASX: KGN) entered a trading halt today shortly after reporting an $11.9 million loss for the December half - a period that is usually its busiest between Christmas and Black Friday sales, in which it had never before been in the red since listing on the ASX in mid-2016. 

The company attributed the loss to continuing supply chain interruptions as a result of the current COVID situation.

This followed an FY21 result that was still in the black at $3.5 million but represented an 86.8 per cent year-on-year fall as the bottom line was pushed down by "one-off" inventory, logistics and Mighty Ape acquisition costs.

CEO and founder Ruslan Kogan told a webinar that previous inventory issues were the result of an "extraordinary set of events" that have led the business to become stronger, building out various systems and technology to better manage inventory challenges.

"We had a bit over a year ago, through COVID and lockdowns, very increased demand that caused us as a business to order more inventory because we wanted to service the demand and the customers," he said of those events.

"Then there was a slowdown in demand which caused our warehouses to not be able to fit all the inventory that we had ordered into the warehouses, which then caused us to have significant issues with the tension charges for the shipping carriers because we weren’t able to collect the containers.

"So not a fun time for the business and certainly challenges that we wouldn’t have wanted to have to overcome, but we’re much stronger for having to overcome them."

This all may be history now, but logistical challenges persist for all businesses and Kogan is yet to prove it can deliver earnings growth in this environment. Adjusted EBITDA was down 66.4 per cent at $17.4 million, and the bottom line swung $35.5 million into the negative.

As far as top-line growth is concerned the results looked more promising, with several positive milestones today such as a 9.4 per cent lift in gross sales to a record half-yearly figure of $698 million, and a similar percentage rise in active customer numbers to more than four million.

"Our business has achieved huge scale, from the roughly $100 million gross sales recorded in the December half prior to our listing in 2016, to our largest recorded gross sales in a single half of $698 million in 1HFY22," Ruslan Kogan said in the announcement.

"We have set our sights high, with a five year goal of $3 billion in annual gross sales, which the first-half results show we are progressively on our way to achieving.

"Over the last six months we have invested heavily on expanding product choice, value and speed of delivery for our over four million Aussie and Kiwi shoppers to delight them each and every step of the way."

He emphasised the team thinks very long term, describing the activities currently underway as "the building blocks for an even bigger and greater business, as we invest in building the best place for Aussie and Kiwi customers to get what they need".

These developments include the launch of Kogan's own delivery services last year.

"It actually worked out to be great timing in the sense that other couriers started to experience a lot of interruptions, but we were able to keep customer experience up at very high levels and getting people their deliveries very quickly," the founder told the webinar.

"It is for our business a very dynamic area of the business where we continue to find new and innovative ways that don't actually require a lot of capex (capital expenditure) to build out that business model.

"It is very technology focused, the ability for customers to be able to receive timely notifications; to have the app that shows exactly where the driver is and when."

He said the group was doing everything it could to keep costs down amidst inflationary pressures and pass the savings on to customers.

"It’s so hard to predict things in the current environment – there’s pallet shortages, chip shortages, shipping costs have gone up, but while on the same hand our business is on the biggest scale it’s ever been," he explained.

"We have more buying power and leverage with our suppliers and manufacturing partners, so we are doing our absolute best as a business to keep costs down and pass whatever savings we can onto customers."

The executive also believes this efficiency and cost saving lends itself to Kogan's prospects if times get tough for consumers.

"While we want the economy to be flourishing and doing as well as possible all the time, during periods when customers are tightening their belts, they tend to be periods that benefit our business a lot," he said.

"If they start doing a bit more research about the product, if they look at specifications, if they look at pricing, if they compare prices, and so on, we tend to benefit in that sort of environment."

KGN shares fell by $1 each after the trading halt ceased, only to bounce back somewhat to 6.24 per cent below yesterday's closing price at $5.26 by the end of trade today.