Motley Fool Australia

Kogan share price in spotlight after it releases new profit update

Kogan share price
Source: Kogan presentation

The sky-high Ltd (ASX: KGN) share price will be in the spotlight after management upgraded its recently upgraded guidance.

Management indicated that the strong sales and earnings momentum it experienced in the last few months is accelerating into FY21.

More profit upgrades for FY21

Gross sales in July jumped more than 110%, while gross profit increased by 160% over the same time last year.

This compares with its previous update on July 21 where management said gross sales and profit improved by 95% and 115%, respectively, its June quarter.  

Kogan share price is the COVID-19 outperformer

Shares in the online retailer is one of the shooting stars from the COVID-19 crisis with the stock rallying nearly 150% since the start of the year.

Kogan isn’t the only retailer to benefit from the pandemic lockdown, but it’s the one that stands out. Other high-flying retailers like the JB Hi-Fi Limited (ASX: JBH) share price, Nick Scali Limited (ASX: NCK) share price and Wesfarmers Ltd (ASX: WES) share price “only” managed gains of around 11% to 25%.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) fell close to 10% over the same period.

Conviction looms large

But Kogan’s recent conviction for “misleading” customers continues to be a thorn in the side of an otherwise outstanding performance.

The Federal Court found that breached Australian Competition Law four days before the last profit update. Kogan is facing steep fines with the court yet to determine relief and penalties for the breach.

Kogan jacked up the prices of more than 600 products just before its tax time promotion, which offered a 10% discount off inflated prices to shoppers.

Kogan’s contempt for customers?

What’s more worrying is that management doesn’t seem to have learnt from that lesson. You only need to read the quotes from the company’s CEO and founder Ruslan Kogan in the July 21 update to see it’s thick with irony.

“We operate in one of the most transparent and competitive industries. We’ve been increasing competition for Australian consumers 24/7 for 15years —all our prices and specifications are publicly advertised every second of the day,” said Kogan.

“Every decision we make in the business assumes that our customers are smart shoppers who have done lots of research — in other words, educated, informed consumers.”

Governance vs. financial performance

You know what they say about the word “assume” – it makes an ass out of “u” and “me”.

It almost sounds like management is saying if you got misled and paid too much, it’s really your fault for not being educated or informed.

Extremely poor choice of words, in my view, and as I said before, a company that treats customers in contempt isn’t likely to treat shareholders much better.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ltd. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended ltd. 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 Scott Phillips.

Related Articles…