Despite the massive surge in online shopping brought upon by the pandemic and subsequent lockdown restrictions, the market has not reacted well to an update from online retailer Kogan.com (ASX:KGN) whose shares tumbled amid profit downgrades.
With supply chain disruptions crippling global commerce, some retailers have had a hard time sourcing inventory but in the case of Kogan, it’s been a matter of having too much on hand. While Kogan was able to alleviate some overbought inventory via the 4 million active customers, it wasn’t enough to salvage KGN shares which closed on Thursday at $6.15, declining 12%.
Within their update, Kogan expected its adjusted EBITDA for the Half Year to be $21.7M, falling from $51.7M compared to a year prior. Inventory levels as of 31 December 2021 fell $197M from $228M at June 30. Kogan struggled to find a balance between bringing in additional products as a hedge against the supply chain issues, instead, this proved to be a strain on profits and affected the overall flow of their business.
As the company grappled with what they described as ‘supply chain issues’, their operation and logistics costs increased, resulting in gross profit dropping just 4% to $112.4M.
To counter these issues, the Company continued to invest heavily in their in-house delivery services as an attempt to limit customer frustrations and speed up delivery time, bypassing Australia Post’s services in select metropolitan regions. The program was dubbed the new “last mile” which was tested in Melbourne, Sydney, and Brisbane. Trialing this service, Kogan delivered more than 100,000 orders directly to customers using their own in-house delivery service.
Founder and CEO of Kogan.com, Ruslan Kogan has failed to go into detail on the issue the company is facing, as well as requesting a bonus grant of 6 million share options for himself and co-founder David Shafer in late 2020 – which the market didn’t take favourably.
As Kogan continues to expand and dip their fingers in new service markets beyond its flagship online marketplace, they hope to meet their growing customer demand and provide telecommunications, insurance and energy services.
Since trading at their 52-week high of $21.89 in February 2021, it has been all downhill for Kogan despite the retailer remaining profitable as it seeks to assimilate the eCommerce model established by Amazon in the United States. This share price decline has coincidentally correlated with co-founders Ruslan Kogan and David Shafer selling $170 million in KGN shares when they were trading at all-time highs around $24 each. Just two months later in November 2020, the co-founders were granted 6 million options with a strike price of $5.29, a retention package valued at $130 million at the time.