Record revenue for Adore Beauty but big spending smudges profit

Record revenue for Adore Beauty but big spending smudges profit

Adore Beauty CEO Tennealle O’Shannessy.

Listed pure-play cosmetics retailer Adore Beauty (ASX: ABY) announced its December half results today, delivering record revenue and customer numbers in the period.

However, a large spend on marketing initiatives and the development of its in-house skincare brand meant profits were down 22 per cent to just $1.97 million.

Revenue from ordinary activities rose by 18 per cent in the half to a record $113.1 million, backed by a 13 per cent increase in active customers which is sitting at 876,000 as of 31 December 2021.

Adore also benefitted from returning customer growth of 56 per cent year-on-year, which offset a 12 per cent decline in new customers.

These returning customers are becoming a key focus for Adore as it prioritises loyalty initiatives - after all, 71 per cent of the company’s revenue is now generated by returning customers who order from the online business approximately three times a year.

To back this strategy, the company has reinvested heavily in efforts to keep these customers coming back for more; a new mobile app delivered 5.6 per cent of Q1 revenue and 7.9 per cent of Q2 revenue.

In addition, Adore says its loyalty program is “exceeding expectations”, and ‘owned’ marketing channels like its podcasts and other content are proving successful. These initiatives will continue to be a core focus for the company which is aiming to increase brand awareness to more than 80 per cent.

In total, nearly $16 million was spent on advertising and marketing efforts in the half. Other big expenses included $10.7 million in employee benefits, $7.1 million of “other operating expenses”, and $892,000 in depreciation and amortisation.

“We know from experience that when customers try Adore Beauty they absolutely love us,” Adore Beauty CEO Tennealle O’Shannessy told shareholders at a webcast today.

“So reaching the millions of consumers that aren’t aware of us provides us with a significant growth opportunity.”

Growth through new brands, inventory investment

The company also onboarded 14 new brands in the period, and saw category growth particularly in fragrances (up 43 per cent to account for 4.1 per cent of total revenue) and Korean beauty (up 98 per cent to account for 2.2 per cent of total revenue).

“We are rapidly expanding our owned marketing channels to capitalise and fortify our first-mover advantage, driven by content, range and a best-in-class customer experience,” O’Shannessy said.

“Our diversified content strategy has created a highly engaged and loyal community, with new podcasts appealing to a broader range of consumers.

“Our content-first approach is helping establish us as the destination for discovery, introducing customers to products ‘they didn’t know they needed’ as a trusted and authentic source of beauty information.”

The company says it is well-positioned for future growth, with a cash balance of $25.1 million as at 31 December 2021 and no debt.

Further, the company invested in additional inventory in order to protect against potential supply chain disruptions.

“Importantly, prudent stock management has ensured inventory turnover is in line with PCP,” ABY said.

“Adore is capital efficient and has a healthy balance sheet, providing the flexibility to pursue its strategic initiatives to accelerate future growth.”

On the back of record revenue results, ABY says overall positive trading momentum from the first half has continued into 2H22, with revenue growth over the first six weeks increasing 14 per cent on the prior corresponding period.

While the company did not declare a dividend to shareholders nor provide any guidance, Adore reaffirmed its target to achieve an EBITDA margin of 2 to 4 per cent in the short to medium term.

Shares in Adore are down 7.78 per cent at $2.49 at the time of publication, continuing the downward trend seen ever since the company listed in October 2020.

Since its debut, shares in ABY have dramatically collapsed from their day one high of $6.99.

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