Shares in online creative marketplace Redbubble Group (ASX: RBL) have dived this morning in response to a trading update detailing a major cost cutting program and the letting go of one in five of the group’s marketplace employees.
Announced today, Redbubble will implement initiatives that are expected to reduce the company’s cost base by between $20 million and $25 million in an attempt to make the company cash flow positive by the end of 2023.
However, investors do not appear to be buying into RBL’s plans as shares dived by more than 10 per cent in early trade, piling on further woes for the company which has seen its share price deteriorate from $1.50 in mid-August 2022 to just 52 cents today.
According to Melbourne-based Redbubble, cost savings will be achieved by suspending investment in its ‘brand awareness project’ and reducing general costs to align with business priorities and scale, reducing expenditure from between $135 million and $145 million to between $125 million and $135 million.
Further, approximately 20 per cent of Redbubble’s marketplace workforce will be let go, representing approximately 14 per cent of the group’s overall workforce. The company declined to provide Business News Australia with current workforce figures.
In its FY22 annual report the company detailed that it had 349 global staff as of 30 June after hiring 140 people during that financial year. Based on these numbers, almost 50 people will be fired as a result of today's announcement.
Today’s news follows a lamentable FY22 for the company which sells merchandise like T-shirts, phone cases and wall art designed by independent artists, having reported a net loss of $24.6 million - a significant fall from the previous year’s overall profit of $31.2 million.
“While we remain confident in the group’s medium-term aspirations, we expect macroeconomic conditions to remain challenging in the near term and accordingly, we have decided to adjust the group’s operating expenditure,” Redbubble said.
“The group is focused on improving its EBITDA margin and is aiming to be sustainably cash flow positive by the end of calendar year 2023.”
Given the company’s marketplace performance in the second quarter of FY23 and January was impacted by ‘increasingly challenging’ trading conditions - the result of a tougher economic environment and highly competitive intensity in the market - Redbubble now expects its full year marketplace revenue (MPR) to be broadly in line with FY22.
During the second quarter, MPR was up just 3 per cent on the prior corresponding period from $182.2 million to $188.5 million. Group operating earnings did rise to $6.8 million in the quarter - albeit form a loss of $7.2 million during the same period a year prior.
“The Group delivered a solid revenue result for the half, with MPR in line with the prior corresponding period (pcp) and underlying MPR up 2 per cent. MPR momentum improved in the second quarter, with group MPR growth of 3 per cent driven by TeePublic, which continued to perform strongly, delivering double-digit MPR growth and its largest quarter ever, surpassing its previous high during the peak of the COVID-19 pandemic,” RBL CEO Michael Ilczynski said.
“Looking ahead, we expect consumer demand to remain challenging in the near term. As a result, we have decided to reduce the cost base within the Redbubble marketplace to accelerate the group's return to cash flow positive. These are hard decisions and I am sorry for the impact this will have on our people.
“The steps we are taking, however, will put our business on stronger footing and position us to capitalise on the tremendous potential of the group as the consumer landscape improves.”
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