Kogan.com’s losses double to $28.3m amid heavy discounting; hefty options costs

Heavy discounting and multimillion-dollar options issued to the online retailer’s founder and chief financial officer has led to a doubling in losses.

Kogan.com boss Ruslan Kogan is upbeat about its slow return to profitability as the retailer’s interim loss doubled to $23.8m. Picture: Hollie Adams

Kogan.com co-founder and chief executive Ruslan Kogan believes the loss-making online retailer has emerged from the pandemic as a stronger business with a leaner inventory base and growing customers as it tries to put its missteps of the last two years behind it.

“I think there are a lot of very positive things happening in the business and a lot of positive trends. I think that our business is stronger and better than ever right now,” Mr Kogan said on Monday as 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.

“You’ve got the majority of profits and sales generated from software or subscription type businesses, whether it be the marketplace where we’re selling our platform or the Kogan First subscription or Kogan Mobile, so we’ve got a very lean and efficient business.

“And in terms of the inventory front, we're becoming better and better with what products we take into inventory now. We’ve been doing that for 17 years, and we messed it up once over Covid.”

A bloated inventory over the last few years has punctured profits at Kogan.com, as excess stock weighed on its costs and eventually had to be sold at deep discounts and promotions – which slashed its margins.

Kogan.com said profitability during the half was significantly impacted by the sell-through of excess inventory in order to substantially right-size inventory levels, which impacted gross margin and marketing costs.

Although Kogan.com’s range of consumer goods proved incredibly popular in the first year of the pandemic, its sales began to later slow, and the online marketplace was left with bloated inventory that weighed on its balance sheet and that ultimately had to be sold at deep discounts to clear.

Shares in Kogan.com traded at almost $25 at the peak of the online shopping boom, but as consumers began to slow their spending, Kogan.com shares plummeted to as low as $2.80 last year as its losses mounted.

Kogan.com also said its loss was 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. The options, which were issued soon after the pandemic began and approved at a later shareholders meeting, were priced a share price well below its pandemic highs, and were valued at $53m when they were first issued. The options package was later worth almost $100m, but have since become almost worthless as Kogan.com shares have tanked.

The group’s loss also includes a $4m provision for the likely payment of the fourth trance of the Mighty Ape purchase price.

Kogan Marketplace gross sales dropped nearly 36 per cent year-on-year, due to soft market conditions.

No interim dividend was declared.

However, conditions appear to be approving, with Kogan.com returning to profit in January. The group has recorded its first adjusted earnings month since July 2022, while its New Zealand business Mighty Ape continues its steady trend of profitability.

It said it improved its inventory position during the half as group inventory levels reduced to $98.3m against $137.9m at June 30, 2022 and $159.9m at the end of calendar 2021.

“We’re pleased to be emerging from a turbulent few years,” said Mr Kogan.

“The ship has steadied, we have a renewed focus on the ruthless efficiency that’s underpinned our entire existence, and we have doubled down on delivering great value for customers.”

Kogan.com said January sales were down 33 per cent tof $68.8m, with the group reporting adjusted earnings of $1.5m.

“We look forward to the second half of this financial year with confidence. We have reset Kogan.com for success, and in doing so, have ensured we continue to delight our millions of Customers during these challenging times.”

Mr Kogan said consumers were feeling cost of living pressures, but historically the retailer did well in these times.

“Historically, our business in environments like that we benefit from customers doing more research, from customers, if they want to buy a washing machine reading a few reviews, opening a few tabs, comparing prices. If every customer does that, we will win a lot of market share.”