Adore Beauty shares slump on slower sales growth and shrinking customer numbers

Adore Beauty shares have slumped 16 per cent as it becomes yet another online retailer to disappoint the market.

Adore co-founder Kate Morris. Picture: Nicki Connolly

Shares in online beauty retailer Adore Beauty tumbled 20 per cent on Thursday after it delivered an underwhelming trading update that triggered panic selling and added the company’s name to a growing list of ASX debutants that have disappointed investors and paid a hefty price.

The update showed sales growth slowed in the March quarter and that active customers had dwindled.

Adore Beauty floated late last year after private equity firm Quadrant partially sold out of the business. The online retailer’s founders also cashed in almost $100m in stock.

On Thursday Adore fell 20 per cent to $3.65 after it revealed it had missed market forecasts. The stock is down 43 per cent from the IPO price of $6.75, burning a total of more than $116m in investor value. The shares later closed on Thursday down 88c, or 19.21 per cent, at $3.70.

A number of online retailers have provided trading updates that have seen massive falls in their share prices with Kogan.com and Redbubble recently providing poor trading performances that generated big falls in their share prices. Kogan.com shares fell 10 per cent last month following a disappointing update, while Redbubble shares slumped 23 per cent when revealed its sales trajectory had weakened.

Adore Beauty seems to have followed suit, stunning its shareholders with a report of slowing momentum and a drop in active customers using its site to buy lipsticks, candles or make-up over the March quarter.

Adore’s March quarter revenue of $39.4m was up 47 per cent on the previous corresponding period, but this was well done on the sales growth of 85 per cent experienced in the first half.

Ruslan Kogan’s Kogan.com also disappointed the market with its latest trading update. Picture: Hollie Adams

The online beauty retailer also said on Thursday that its active customers for the nine months to the March quarter numbered 687,000, up 69 per cent on the previous corresponding nine month period. However, this seems to be down on the update provided at the December half when Adore Beauty said it had 777,000 active customers for calendar 2020 at its site.

Adore said March quarter gross profit margin of 32.5 per cent was up 1.4 percentage points, underpinned by product margin expansion. It said EBITDA of $5.2m was 58 per cent ahead of prospectus forecast of $3.3m and up 188 per cent and that it had $25.9m cash as at December 31, with no debt.

But in a market when tech-related stocks are priced for perfection, investors were more focused and frightened by the slowing sales growth and drop in active customers and sold down Adore Beauty shares heavily.

It was a different story in October when Adore Beauty shares hit the boards. Shares in the retailer listed at $7.40, or a 9.6 per cent gain on the IPO price of $6.75, and closed at $6.92, up 2.5 per cent for the day. It has since slid and now collapsed 16 per cent in one day as the market redrafts its earnings projections.

Adore co-founders Kate Morris and James Height took out $92m from the October float, with private equity firm Quadrant also making a handy profit as it sold down to 32.5 per cent. Ms Morris and Mr Height each retain an 11 per cent stake.

Adore was founded in 2000 by Ms Morris and Mr Height and has grown to become Australia’s No 1 pureplay online beauty retailer with more than 230 global and domestic brands and 11,000 products — some of which are available exclusively on its platform.