Kogan's return to an 'inventory-light business': Shares rally on trading update

The beleaguered Kogan (ASX: KGN) is trying to turn the ship around, announcing an improved cash position and an accelerated sell-through of excess inventory in the September quarter.

Kogan shares rallied as high as 11.25% in early trade and currently settling around 4.3%. The stock is still down -58% year-to-date and 85% away its all-time high.

Inventory wind-down

Inventories fell to $132.1m at the end of the September quarter, a much needed reduction from previous levels including:

• FY22: $159.9m

• 1H22: $196.8m

• FY21: $227.9m

Excess stock levels and associated logistics and warehousing costs have weighed on the company's profits and gross margins across both Kogan and Third-Party brands.

"The sell-through of inventory, and tight controls on costs, has supported the growth of our net cash balance (after loans & borrowings), ending the quarter with $23.8 million," Kogan said in a statement.

Cycling tough numbers

Quarterly gross sales fell -38.8% year-on-year to $202.3m as the business cycles through a period of elevated sales that included lockdowns.

Active customers also declined -12.3% year-on-year to 3.59m and down -9.5% from the record 3.97m figure in FY22.

The accelerated sell-through of excess inventory and weaker sales resulted in a -40.4% year-on-year decline in gross profits to $31.3m.

Adjusted earnings for the September quarter was negative at -$300,000 compared to $19.1m in the June quarter.

"The Company does not believe that the 1QFY23 trading result is indicative of its projected trading performance, once the final sell-through of excess inventory has been completed," said Kogan.

"The Company looks to 2HFY23 with confidence in its ability to return to a nimble, agile and inventory-light business that delivers strong operating margins."

A potential short squeeze

Kogan is the 11th most shorted stock on the ASX with 7.94% short interest, according to Shortman.

Growth for the September quarter appears rather ugly at face value but unsurprising given the cycling of last year's numbers and the actions needed to address its inventory problem.

The stock has rallied on Wednesday but the question is - is the rally fuelled by short covering or is it genuine buying that's coming back to the ecommerce play?

Kogan share price chart