Cettire still awaiting audit sign-off, cautions on luxury retail conditions as profit slumps

The online luxury goods marketplace’s shares tumbled after releasing full-year accounts that are yet to be signed off by an auditor, which is closely reviewing how revenue is recognised.

Cettire chief Dean Mintz said his near-term focus was to increase the ‘emphasis on profitability’ over growth.

Online luxury goods marketplace Cettire has cautioned of softer trading conditions and released full-year accounts that are not yet signed off by its auditor, due to a sweeping review of how it recognises revenue.

Investors pummelled the company’s stock on Thursday as it warned that trading conditions in the luxury goods market were weighed on by clearance and promotional activity and reported a slump in fiscal 2024 statutory net profit. Cettire noted sales in July and August were tracking about 20 per cent above the same months a year earlier, but that still left investors jittery given the trajectory fell short of expectations.

Cettire’s shares tumbled 20.3 per cent to $1.06 on Thursday, markedly outpacing a 0.3 per cent drop in the S&P/ASX200.

The company’s profit was $10.47m for the 12 months ended June 30, compared to $15.97m in the prior corresponding period, reflecting challenging retail conditions and higher marketing expenses. The accounts and presentation noted that metrics were unaudited, as auditor Grant Thornton was undertaking additional work, including a “technical review” of whether Cettire should continue to book revenue as a principal vendor or shift to a model that would have it account for revenue as an agent.

Cettire operates a drop-shipping model, which connects wholesale suppliers with customers, meaning the company doesn’t hold inventory.

That structure has come under immense scrutiny in the past six months, given Cettire’s complex supply network, customer service issues and the way it charged duties before it overhauled systems to include duties in the overall price customers are charged. The competition regulator is probing complaints about Cettire’s handling of disputes over refunds and defective goods. The US Federal Trade Commission is separately assessing 173 complaints relating to Cettire over four years.

RBC’s head of small cap research Wei-Weng Chen said Cettire’s fourth-quarter results and a trading update for July and August were “broadly negative”.

“Based on released accounts (preliminary and unaudited), it would appear 4Q24 (fourth quarter 2024) was only marginally profitable ($100,000 on $197m of revenue). Early FY25 trading appears soft as compared to consensus but remains ‘adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) positive’ – the extent to which EBITDA is positive matters as consensus presently is forecasting $17.7m of 1H25 (first-half 2025) EBITDA. “

Investors and analysts will closely monitor the conclusions of the auditor’s review of Cettire’s revenue accounting, and why this issue had not been raised in six prior audits by Grant Thornton.

The company’s results noted it was “working closely” with Grant Thornton to enable the firm to finalise its audit.

“This year’s audit is taking longer than in prior years as a result of the company taking the initiative to conduct more comprehensive processes following recent market commentary, and the auditor (Grant Thornton) likewise undertaking additional audit procedures on an expanded scope,” the Cettire documents said.

“The technical review is nuanced and ongoing and, in particular, is considering whether, as the business evolves, Cettire should continue to recognise revenue as principal or agent.

“Grant Thornton is in the process of completing its assessment.”

Cettire admitted a change to its revenue recognition would reduce income but not impact reported earnings. The accounts also showed the company spent almost $1m to counter short sellers of its stock.

Asked whether Cettire passed on all customs duties paid by customers to the relevant authorities, finance boss Tim Hume gave a confusing answer.

“With a VAT (value-added tax) or a GST your obligation as a vendor is to – where those taxes are applicable – is to collect those taxes or apply them to a sale, and what you collect … your obligation is to remit that to the relevant authority,” he said.

“Duty by nature is a bit different. It’s around the obligation is to pay duty when duty is dutiable … it’s important just to make that distinction, but this is not really a feature of the business under the current structure … as I’ve indicated in our primary markets duties are now presented on an inclusive basis, so we are not separately collecting duty.”

Cettire’s sales revenue climbed 78 per cent to $742.3m, while gross revenue was $978.3m and within a full-year guidance range of $975m to $980m.

The accounts showed Cettire’s adjusted full-year EBITDA was $32.5m, printing below analyst expectations and at the lower end of $32m to $35m guidance. That measure excludes share-based payments, unrealised foreign exchange losses or gains and the impact of foreign exchange contracts and “other items”.

Adjusted EBITDA for the 2023 financial year was $29.3m.

The June guidance prompted a fierce response from investors, who sent Cettire’s shares plummeting 50 per cent that day, given the company had two months earlier said EBITDA for the first nine months of the financial year was already $32m.

Cettire on Thursday reported a 64 per cent annual jump in active customer numbers to 692,000. The company’s refund rate increased, however, to 24.1 per cent in the 12 months ended June 30, from 22.8 per cent a year earlier. Mr Hume noted the refund rate was declining over the past two months.

Cettire chief executive Dean Mintz said his near-term focus was to increase the “emphasis on profitability” over growth, particularly while market conditions remained soft. “Longer term, we see the strong fundamentals of the growing US$400 billion luxury market and its ongoing structural shift to online, providing Cettire with significant runway to scale the business,” he added.

Cettire did not declare a 2024 dividend, which mirrored the outcome of its results a year ago.

Grant Thornton received almost $306,000 in remuneration from the company for fiscal 2024, up from $250,755 in the 2023 financial year.