Upbeat Kogan to buy back shares as underlying earnings recover

A three-month run of positive group earnings has led e-commerce player Kogan.com (ASX: KGN) to announce a share buyback, demonstrating founder Ruslan Kogan's confidence in the group's future performance following a rough 2022 for the online retailer.

Kogan founder and CEO Ruslan Kogan has labelled the journey to underlying profitability as ‘one of the toughest in [its] 17 year history’ after today announcing adjusted EBITDA of $4.4 million before non-cash items and one-off non-recurring costs, representing a 180-degree turn from the previous $4 million underlying loss.

In an upbeat business update, the company says its three-month run of positive earnings from 1 January to 31 March is the result of a year of optimising and refocusing the business to align with ‘rapidly changing trading conditions’.

It also comes after a blowout in losses to $23.8 million in the first half of FY23, a period defined by what the company described as a ‘drastic change in demand for online retail’.

Those losses were driven by an over-supply of inventory, prompting Kogan to heavily discount excess merchandise during the half with some products sold below cost.

Today, the company says it has corrected inventory levels to $78.3 million as at 31 March 2023, renegotiated supplier contracts, recalibrated its market spend and optimised operational efficiency and capital management.

However, the retailer notes subdued sales activity for the quarter as as interest rate rises and inflationary pressures impacted customer spending.

All in all, Kogan concluded the quarter with a strong balance sheet underpinned by $49.1 million of net cash.

“After a series of challenging periods, I’m proud that Kogan.com has returned to sustained underlying profitability, reflecting the efforts of our brilliant team and the agile and robust business we have built,” founder and CEO Ruslan Kogan said.

“The journey to get here has been one of the toughest in our 17 year history, but also one of our most rewarding. It goes without saying – we are a far stronger company today than ever.

“Whilst it’s nice to celebrate this milestone, what I’m most excited about now is returning to what we do best – delivering incredible value to our millions of customers across Australia and New Zealand.”

READ MORE: ‘Aberration’: Ruslan Kogan reflects on the long-term growth trend of online retail

The company closed out the third quarter with $188.7 million in sales - 28 per cent less than what it achieved in the prior corresponding period.

Gross profit was down by 16.5 per cent to $34.3 million. Total active customer numbers were just over 3 million - primarily Kogan.com customers at 2.3 million while the remainder were Mighty Ape customers.

The firm also announced an on-market share buyback today, by which it intends to buy up to a maximum of 10 per cent of issued ordinary shares for no more than 5 per cent above the volume-weighted average price of KGN shares over the five trading days prior to the purchase.

“Today’s announcement takes into account Kogan.com’s return to positive Adjusted EBITDA, strong Balance Sheet and positive net cash position, increasingly inventory-light business model, efficiencies created and expected in operating costs, and improving Gross Margins caused by the growing contribution from commission-based revenue streams,” KGN said.

“As part of its growth strategy, the Board deems the acquisition of shares at prevailing prices to be a prudent approach to effective capital management, while also ensuring the retention of financial flexibility to fund accretive organic and inorganic growth opportunities.”

Shares in KGN are up 9.17 per cent to $3.93 per share at 11.12am AEST.