MENU Ltd delivers earnings beat: Is it a buy? Ltd (ASX: KGN) has announced its profit result for the 2016 financial year today, reporting revenues and earnings that were considerably above what the company forecast in its recent prospectus. is an online electronics retailer which made its debut on the ASX early in July. The shares listed at $1.80, but fell to as low as $1.45 on investor concerns over its future (largely due to the recent demise of Dick Smith). However, they have rebounded significantly in the time since.

Here’s how Kogan’s results compared to the prospectus forecasts:

  Pro Forma* Forecast Pro Forma Actual Variance
Revenue $201.1 million $211.2 million 5%
Gross Profit $29.2 million $32.7 million 12%
Gross Margin 14.5% 15.5% 6.9%
EBITDA** $2.9 million $4 million 37.9%
Net Profit After Tax $0.4 million $0.8 million 103%

*Note: Pro forma forecasts eliminate the effects of one-off transactions, including the impact of expenses incurred to list on the ASX. **EBITDA = earnings before interest, taxes, depreciation and amortisation.

Indeed, it was a pleasing result for investors. A number of factors contributed to the strong figures, including a growing customer base, the successful integration of the Dick Smith online business into Kogan and growth in the gross margin.

What’s more, the company said trading results for July were ahead of the prospectus forecast monthly projection for financial year 2017, although it stopped short of increasing its estimates. It forecast revenue of $241.2 million, representing 14.2% growth on today’s results, as well as a gross profit of $36.7 million, which would represent growth of 12.2%.

Despite the result, Kogan’s shares have risen just 0.7% for the day to $1.682, after trading as high as $1.73 earlier. It seems the market may have already priced in an earnings beat, perhaps after the strong result issued by JB Hi-Fi Limited (ASX: JBH) on Monday last week. also referred to estimates from Euromonitor which suggest the Australian online retail market was valued at $17 billion in 2015, and is forecast to grow at a compound annual rate of 11.5% until 2019, which could help generate plenty of growth for over the coming years.

Still, remains a significantly smaller business than either JB Hi-Fi or Harvey Norman Holdings Limited (ASX: HVN), and with far lower earnings. It’s also not immune to competition – especially if the likes of ramps up its efforts in Australia in the coming years, which is something prospective investors should certainly keep in mind.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Motley Fool contributor Ryan Newman owns shares of The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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