Even as revenue and profit fall, Kogan says it has everything under control

If you haven’t been living under a rock, you must have heard about the massive tech layoffs across companies like Meta and Amazon. An underlying theme behind these layoffs was their CEOs’ dizzying faith in the e-commerce boom during Covid. Perhaps Aussie online shopping platform Kogan (ASX: KGN) bought into that school of thought, which would explain its overstocking of inventory.

However, the overstocking was fruitless—it not only brought down its share price due to excessive losses, but it is also subject to consumers’ ongoing departure from online shopping. During Covid and beyond, companies overestimated the popularity of e-commerce and suffered the consequences.

Kogan accumulated losses of over $40 million in FY22. Now, however, things are improving. 

Founder and CEO Ruslan Kogan said, “We’re pleased to be emerging from a turbulent few years. 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.”

Before the first half of FY23, the Company had invested heavily in inventory and operational capacity. But as people showed little interest in shopping online, Kogan’s inventory increased disproportionately, thus also increasing operational expenses and losses. In H1 FY23, it focused on returning to profitability. 

At the outset, it sold its excess inventory, reducing inventory in-warehouse by 39.0% since June 30, 2022. Kogan’s inventory levels reduced to $98.3 million as of 31 December 2022, comprising $84.1 million in-warehouse and $14.2 million in-transit inventory. In June 2022, this was at $137.9 million.

To reduce inventory levels, it also offered massive discounts to buyers (lucky if you made the most of it!). Its net cash (after loans & borrowings) grew to $74 million in H1 FY23. 

Besides that, it undertook cost reduction initiatives to improve the Cost of Doing Business (CODB). These initiatives included limiting sales of underperforming product categories, redirecting marketing spending as excess inventory progressively resolved and managing fixed costs to align with current trading conditions

Kogan added, “The first half delivered on multiple fronts. We were pleased to welcome 500,000 Brosa subscribers to the Kogan.com community following our acquisition of one of Australia’s largest online furniture retailers. Our Verticals, namely Kogan Mobile Australia, Kogan Mobile New Zealand and Kogan Money Credit Cards, grew YoY as we provided services at incredible prices.”

Plus, in H1 FY23, Gracie MacKinlay was appointed CEO of the Company’s New Zealand subsidiary Mighty Ape. Mighty Ape delivered exceptional service to its customers, winning multiple New Zealand customer service awards. Top-line performance declined YoY as sales fell 9.1% and revenue fell about 8%. Thankfully, this decline was offset by an improvement in Gross Margins, reflecting the benefits of selling Kogan.com exclusive products and reducing international shipping rates. 

Essentially, the Company was brought back to life through its subsidiaries. The greatest chunk of Kogan’s revenue came from its mobile arm in New Zealand, with its revenue growing by 75.3%. It also relaunched Kogan Travel and Kogan Travel Insurance and transitioned the partnership for Kogan Insurance Home, Contents, Landlord, Car and Life.

In the second half of FY23, Kogan expects to improve its online marketplace, launch more verticals in New Zealand and grow its popular businesses.

In fact, in January 2023, it already showed a return to positive adjusted EBITDA of $1.5 million. Things are looking up, will they stay this way as household inflationary pressures continue?