By Fat Tail Investment Research
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Online retailer Kogan [ASX:KGN] declares a ‘shifting focus to operational efficiency’ and ends FY22 with a net loss of $35.5 million after tax.
Kogan’s revenue from ordinary activities fell 8% to $718.5 million. The retailer said it is transforming itself into a ‘leaner business’ by ‘right-sizing inventory and reducing associated operating costs.’
KGN shares were down 8% in late afternoon trade on Tuesday.
Over the past 12 months, the KGN share price is down 70% and down 85% since the all-time high in October 2020.
Source: tradingview.com
Kogan admitted it got things wrong in FY22 as it bet big on e-commerce, but the online shopping trend did not grow as anticipated.
As a result, Kogan was caught holding excess inventory, and the costs entailed in offloading that excess inventory.
The key results:
Founder and CEO of Kogan, Ruslan Kogan, offered a blunt assessment of the year that was.
Ruslan admitted the retailer was wrong in extrapolating e-commerce trends during COVID.
Ruslan commented (emphasis added):
‘The consistency of this growth was rocked by the onset of the COVID-19 pandemic, when customers turned to Kogan.com, and we found that — almost overnight — our business started to double in sales. Kogan. com quickly became the destination that millions of Australians relied on for the most essential items. This acceleration of sales continued for many months in the first year of the pandemic, and we bet that the trend was not going to stop.
‘To ensure we could be there for our customers when they needed us most, we increased both our range and volume of inventory, as well as our logistics footprint to match this expected level of growth.
‘We were wrong. As the true volatility of the situation settled in — caused by stay at home orders and lockdown ambiguity — eCommerce did not continue to grow as anticipated. This led to us holding excess inventory, and an associated increase in variable costs and marketing costs to sell through the inventory. As we’ve discussed at length through regular updates this past year, profitability in FY22 was impacted.’
Ruslan Kogan wasn’t the only high-profile CEO of a retail company on the wrong side of the e-commerce bet.
Last month, Shopify CEO Tobias Lutke announced big layoffs after Shopify’s big push to accommodate a predicted surge in online shopping brought on by COVID didn’t materialise.
Announcing the layoffs, Lutke wrote:
‘We bet that the channel mix — the share of dollars that travel through ecommerce rather than physical retail — would permanently leap ahead by 5 or even 10 years. We couldn’t know for sure at the time, but we knew that if there was a chance that this was true, we would have to expand the company to match.
‘It’s now clear that bet didn’t pay off. What we see now is the mix reverting to roughly where pre-Covid data would have suggested it should be at this point. Still growing steadily, but it wasn’t a meaningful 5-year leap ahead.’
Source: US Census Bureau
Ruslan Kogan was nonetheless buoyant about the future of online shopping.
Ruslan’s certainty that online shopping would define the future of retail ‘is even stronger today than it’s ever been.’
He further stated that ‘more Aussies and Kiwis will be online shoppers tomorrow than today.’
A proposition that highlights KGN’s current bloated inventory — and its optimism for a long growth runway.
KGN did flag it will raise the price of its Kogan First service to $79 per year due to increased subscriber benefits and rising delivery costs.
Now, while online shopping trends may have stabilised — contrary to Kogan and Shopify’s ambitions — other trends have not.
One such trend is electrification, the adoption of electric vehicles (EVs), and the rise in demand for battery tech metals.
The world is hungry for battery tech metals.
But the race to secure critical battery tech metals like lithium, graphite, or cobalt could lead to a big supply crunch.
Our small-cap expert Callum Newman has recently released a report on three overlooked battery tech stocks he believes are flying under the radar.
He calls these stocks ‘Elon’s Chosen Ones’. Access the free report here.
Regards,
Kiryll Prakapenka,
For Money Morning
Kiryll Prakapenka is a research analyst focusing on investigating the biggest trends in investments. Kiryll brings sound analytical skills to his work, courtesy of his Philosophy degree from the University of Melbourne. A student of legendary investors and their strategies, Kiryll likes to synthesise macroeconomic narratives with a keen understanding…
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