Losses continue for Kogan.com but says it has posted underlying profitability for three straight months

Once the high-flyer of the online retail sector, Kogan.com has posted losses for the March quarter and a slump in sales as economic conditions soften.

Online marketplace Kogan.com remains deeply mired in losses and has suffered a near one-third drop in sales over the March quarter, blaming softening market conditions fuelled by higher interest rates and soaring inflation for the slowdown.

However, the online retailer known for selling everything from air fryers to mobile phone plans did report that it had recorded three consecutive months of underlying profitability with its once bloated inventory position – which had been a huge weight on its balance sheet for more than a year – had also improved with inventory levels reduced to $78.3m at the end of March.

Its excess levels of inventory had forced Kogan.com to heavily discount products, which had pinched margins and profitability.

For the March quarter, Kogan.com reported adjusted earnings of $4.4m, against a loss of $800,000 for the same period last year, but earnings before interest and tax were a loss of $8.1m.

Kogan.com has also announced an on-market share buyback of 10 per cent of the company.

The market looked beyond the losses to focus on the improving underlying earnings and benefits that should flow from the share buyback, sending Kogan.com shares more than 12 per cent higher before closing up 26c, or 7.22 per cent, at $3.86.

In a trading update for the March quarter, Kogan.com has become the latest pure-play online retailer to testify to the softening conditions in the market, as consumers return to bricks and mortar stores following years of lockdowns that had initially driven them to shop online.

In February, the former high-flyer of the online retail space posted a doubling of its net loss to $23.8m for the six months to December, as revenue dropped 34 per cent to $275.6m. That loss was also driven by non-cash equity-based compensation expense of $14.2m from the award of options to Mr Kogan and chief financial officer David Shafer.

On Wednesday, Kogan.com said the company’s return to consistent underlying profitability – which it frames as adjusted EBITDA – was a result of more than a year of optimising and refocusing of the business to align to the rapidly changing trading conditions.

However, the March quarter did continue to reflect subdued sales activity, as interest rate rises and inflationary pressures across the economy impacted consumer spending. Further operational efficiencies are being implemented through the remainder of fiscal 2023.

It said gross profit of $34.4m, down from $41m in the third quarter of 2022, was impacted by soft sales. Sales for the quarter of $188.7m fell 28 per cent, impacted by poorer market conditions caused by interest rate rises and inflationary pressures, Kogan.com said.

Gross margin increased 6.5 points to 31.6 per cent over the quarter. Key drivers of the improvement include the conclusion of significant discounting to sell-through aged inventory at the start of the third quarter and an increased proportional contribution from the Kogan.com Marketplace and Kogan First commission streams.

“After a series of challenging periods, I’m proud that Kogan.com has returned to sustained underlying profitability, reflecting the efforts of our brilliant team and the agile and robust business we have built,” said Kogan.com co-founder and chief executive Ruslan Kogan.

“The journey to get here has been one of the toughest in our 17-year history, but also one of our most rewarding. It goes without saying – we are a far stronger company today than ever.”

Kogan.com also announced an on-market share buyback program up to a maximum of 10 per cent of issued ordinary shares, commencing May 12 and ceasing on May 10, 2024.