Kogan.com warns it expects first-half loss of $31.3m

Once a retail high-flyer during the Covid-19 shopping boom, Kogan.com is now facing sliding sales and a record first-half loss of more than $31m.

Kogan.com chief executive Ruslan Kogan believes trading will improve this year. Picture: Hollie Adams

Kogan.com will slump to a pre-tax loss of $31.3m for the six months to December 31 – its biggest half-year loss ever – as trading conditions deteriorate from highs recorded during the pandemic.

But the retailer said its bloated inventory levels were improving.

In a trading update on Tuesday, Kogan.com said gross sales in the December half were down 32.5 per cent at $471.1m, reflecting subdued sales activity for the company, while cycling a half in the prior year that was affected by Covid-19 lockdown orders.

As Kogan.com attempted to shift stock and clear its high inventory levels, it was forced to slash prices, affecting its profitability.

The retailer said it had focused on selling the final balance of its excess inventory over the period – with unprecedented discounting affecting gross profit and gross margin. However, the reduction in inventory resulted in reduced ­operating costs, across both warehousing and marketing.

Kogan.com said it expected earnings before interest and tax to be $31.3m for the first half, against a net loss of $11.87m for the first half in fiscal 2022. It posted a 2022 full-year loss of $35.5m.

The company’s chief executive, Ruslan Kogan, has blamed rising interest rates and inflation for subduing consumer confidence and putting pressure on spending.

“The impacts of inflation and interest rates have begun to affect the lives of Australians and New Zealanders,” he said. “We’ve been growing Kogan.com for more than 16 years now, so we’ve been through many cycles and we know that when customers are watching their costs carefully, e-commerce becomes even more important. Since Kogan.com launched out of a garage in 2006, we’ve been obsessed with making the most in-demand products and services more affordable.”

Kogan.com boss Ruslan Kogan has blamed rising interest rates and inflation for subdued consumer confidence.

Kogan.com shares rallied strongly during the pandemic, hitting a high of just under $25 in late 2020. But as the pandemic waned and shopping online subsided, the company’s sales and earnings dived along with its share price.

Kogan.com shares have slumped about 80 per cent since then. Its shares rose after Tuesday’s update, closing up 9c at $4.42 in a higher market.

Kogan.com was also left with a bloated inventory having purchased large volumes of stock expecting consumer demand to remain buoyant. This later cost Kogan.com millions of dollars in extra warehousing expenses. On Tuesday, the company told investors it had made significant progress in the sell-through of excess inventory during the half, having reduced in-warehouse inventory by 39 per cent since June 30.

The reduction in inventory levels supported growth in net cash to $74m, after having funded the latest tranche of its acquisition of New Zealand retailer Mighty Ape, repaid loans and borrowings of $25m and successfully acquired the assets of collapsed online furniture business Brosa. The half also saw Kogan First subscribers grow nearly 48 per cent to 404,512.

Kogan.com told investors it expected gross margins to improve from this month: “The company looks to the second half of fiscal 2023 with confidence in its ability to return to an agile, nimble and inventory-light business that achieves strong operating margins and profitability.”

RBC Capital Markets analyst Wei-Weng Chen said the company’s first-half earnings came in below his expectations and consensus estimates largely as a result of aggressive discounting during the half to sell through excess inventory. “Gross profit and EBITDA came in well below RBC and consensus,” Mr Chen wrote in a note to his clients.

“Due in large part to ‘unprecedented’ levels of discounting to move excess inventory, gross profit of $62.9m was 23 per cent below RBC estimates and 24 per cent below consensus.”

He said the large reduction in inventory levels was a positive.