Consumer Discretionary

Kogan: sales lift but profits halve with covid to blame

Thu 27 Jan 22, 11:56am (AEDT)

Key Points

  • Kogan shares are now trading -15% below pre-covid levels
  • Solid top-line growth failed to trickle down into profits
  • Logistics costs, elevated inventory and marketing spend eroded margins

Kogan (ASX: KGN) tried to hide a sharp decline in earnings, with just five words in today's business update saying “Adjusted EBITDA was $21.7 million”.

Sifting back to its first half FY21 results, the company delivered $51.7m in adjusted EBTIDA.

Why not just tell us that earnings declined -58%?

In a business update titled “Gross Sales and Revenue exceeded FY21’s record first half”, Kogan pushed the view that its top-line was growing strongly, with customers growing 10% year-on-year to $4m and sales growing 9% to $698m.

The encouraging top-line figures failed to trickle down to the bottom line, with gross profit down 4.4% to $112.4m. 

Continuing supply chain interruptions, increased logistics costs and higher marketing expenses weighed on profitability.

This has been a recurring narrative, with the latest business updates from Adairs (ASX: ADH) and Redbubble (ASX: RBL) flagging the same challenges.

Another update, another dip

Kogan shares have a strong track record of falling off a cliff after a business update (% on day of announcement).

  • 25 November: Annual General Meeting (-4.3%)

  • 20 October: Business Update (+6.7%)

  • 24 August: FY21 results (-15.5%)

  • 21 July: Business Update (-1.5%)

  • 21 May: Business Update (-14.6%)

  • 23 April: Business Update (-14.3%)

  • 26 February: 1H21 results (-10.4%)

  • 29 January: Business update (-8.5%)

2022-01-27 11 39 55-Window

Kogan price chart with events

Kogan shares plunged -17.5% this morning, trading -4.5% lower at noon.

What brokers think

Two major Australian brokers cover Kogan, though the price targets date back to October 2021.

The consensus is a Buy rating with a $11.94 price target (93.5%) upside.

Much of the broker's assumptions have failed to fall through in today's trading update.

UBS' note from November expected gross margins to trend upwards.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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