Adore Beauty shares slump amid sliding profits as inflation and subdued consumer demand hits

Online cosmetics and personal care products retailer Adore Beauty has warned it expects its profitability to sink this year and for profit margins to only return to growth in 2024.

Online cosmetics and personal care products retailer Adore Beauty has warned it expects its profitability to sink this year and for profit margins to only return to growth in 2024 as subdued consumer demand and inflationary pressures dent the company’s earnings.

Its once booming sales growth, driven by customers in lockdown ordering up skincare, cosmetics and candles, slowed to a complete halt and has now gone backwards for the first time.

Shares in Adore Beauty sank 15 per cent on the poorer outlook to a low of $1.55 when the market opened on Monday. It later closed down 19.5c at $1.645.

It’s bad timing for the online retailer, with chief executive Tennealle O’Shannessy recently announcing her intention to leave the group and its share price at record lows.

Latest trading for the online retailer has underlined the stresses and challenges its business now faces, with revenue for the first seven weeks of fiscal 2023 plummeting 28 per cent. This is a continuation of poor trading Adore first revealed to the market in February when the retailer issued its first-half results that showed sales growth of 18 per cent had slowed to 14 per cent for the first six weeks of the second half.

In April a trading update reported that revenue had continued to splutter, slowing to 9 per cent for the third quarter. Now that revenue has gone negative.

Adore also warned on Monday, after it posted an 11 per cent rise in full-year revenue to $199.7m as net profit rose 181 per cent to around $2.4m, that it is facing inflationary pressures around employee, freight and marketing costs at a time that consumer sentiment is more subdued.

“The company is implementing cost control measures to actively manage inflationary pressures. At the same time, Adore Beauty is prioritising and stepping up its investment in strategic initiatives that drive margin expansion,” the company said.

Adore, which is on the hunt for a new chief executive, has warned it expects its profitability to sink this year and for profit margins to only return to growth in 2024.

Adore said it will double its investment in owned brands to support scaling future revenue and margin expansion, but given these cyclical headwinds and continued investment, the group does not expect to achieve an EBITDA margin of 2-4 per cent in 2023.

However, it expects to remain profitable on a full year basis.

The company expects to return to a 2-4 per cent EBITDA margin range for the full year in 2024.

“Longer-term, Adore Beauty expects to continue to benefit from the structural shift to e-commerce, which combined with high levels of customer retention and growing brand awareness, positions the company for strong future growth.”

In a long-range forecast, Adore said it is targeting an EBITDA margin of 8-10 per cent for the full year in fiscal 2027, with the mobile app and owned brands targeting contributions of 30 per cent and 10 per cent of revenue respectively.

Beyond 2027, Adore is targeting an EBITDA margin of over 10 per cent as owned brands targeted contribution increases to more than 15 per cent and new geographies unlock additional revenue opportunities.

Meanwhile, for 2022 the retailer reported EBITDA of $5.3m and EBITDA margin of 2.7 per cent that was in line with guidance and reflecting reinvestment in the business.

Adore said it is targeting greater growth from its new push into private label cosmetics, which promises much more attractive profit margins, and is scaling up its exposure to the fast-growing ‘Korean Beauty’ category.

Its first owned brand Viviology was successfully launched and early sales have been ahead of expectations, the company said.

Adore said for fiscal 2022 it had active customers of 872,000, up 7 per cent on 2021 and 48 per cent on 2020.

“Our changing active customer base now has a higher proportion of returning than new customers, with subscription-like retention rates after just two years on the platform,” Ms O’Shannessy said.

Two weeks ago, Ms O’Shannessy, who has been in the role for only two years, tendered her resignation in order to join IDP Education as its new boss.

Originally published as Adore Beauty shares slump amid sliding profits as inflation and subdued consumer demand hits