The surge in online sales owes much to the digital revolution and the closure of brick-and-mortar stores, forever changing the retail landscape. E-commerce platforms serve as the big stage with bustling hubs, infrastructure, foot traffic, and amenities, while individual sellers take the spotlight to cater to their audience.
Increased sales with less and less inventory risk has propelled Australian electronics retailer Kogan.com (ASX: KGN) to centre its focus around transforming into a majorly platform-based business. Serving as sales middlemen rather than directly maintaining Kogan product inventories, KGN’s platform-based strategy delivered higher margin revenue with lower operating costs in FY23.
Its Platform division recorded over 57% of Gross Sales and 71% of Gross Profit, outgrowing the Product Divisions (excluding Mighty Ape) for the first time. This evolution marks a shift towards a business model with lower risk, lower cost-of-doing-business, lower inventory, higher margin and higher recurring income.
Kogan ended the financial year with $65.4 million cash at 30 June 2023, a $34.2 million increase over the previous year. The growth in cash balance has been delivered after the repayment of bank debt, completion of Mighty Ape Tranche 3 payment and the payment of more than $10 million in respect of the share buy-back program that commenced in May 2023.
KGN is also set to acquire online luxury furniture retailer Brosa for $1.5m in FY24 with the acquisition to be funded from existing cash reserves.
Commenting on FY23 performance, Founder and CEO Ruslan Kogan said: “FY23 marked a significant milestone in the history of our Business. For the first time ever, Kogan.com’s platform-based sales contributed the majority of our Gross Sales and Gross Profit.
“Importantly this has enabled us to deliver better quality earnings as we successfully transitioned into a higher margin, lower risk, platform and software based business while offering our customers increased competition and improved value.”
Kogan’s Product Division has reduced inventories on hand by over 57% to $68.2m, carried over to FY24 aligning to the current levels of demand for both Exclusive and Third-Party Brand sales. The inventory level adjustments improved Gross Margin by 2.2pp year-on-year (YoY), and accelerated to an improvement of 8.9pp in H2 FY23.
However, the inventory adjustments negatively impacted Gross Profit by 26% to $136.6m year-on-year. Gross Sales and Revenue also declined by 28.4% and 31.9% to $844.8m and $489.5m respectively, further compounded by challenging market trading conditions.
Challenges in generating significant revenue and maintaining healthy margins also contributed to a negative Statutory Net Loss After Tax (NLAT) of $25.9m, but this was still an improvement from the $35.5m loss in the previous year.
The Kogan First loyalty program grew to over 401,000 Subscribers as at 30 June 2023 compared to over 372,000 in the previous year, with the program’s Revenue up 69.6% to $26.3m.
FY23 Group Active Customers were 2,945,000 comprising 2,190,000 for Kogan.com and 755,000 for Mighty Ape.
The Company expects FY24 to be a positive one, having returned to underlying profitability in the second half of FY23. It will continue growing the Kogan Verticals division (Kogan Mobile, Kogan Money, Travel Insurance, Kogan Insurance Home, Contents, Landlord, Car and Life) and its expansion into New Zealand, offering even better value than before.
Due to the on-going share buy-back, which is scheduled to complete on 10 May 2024, the Board has not declared a FY23 Dividend.
Clara is a Business Reporter for The Sentiment.
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