Kogan (ASX:KGN) share price sinks 8% after FY21 results and weak start to FY22

This ecommerce company is still having a tough time…

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The Kogan.com Ltd (ASX: KGN) share price is being sold off after the release of its full year results.

At the time of writing, the ecommerce company's shares are down 8% to $12.10.

Kogan share price sinks after results release

  • Gross sales increased 52.7% to $1,179 million
  • Revenue jumped 56.8% to $780.7 million
  • Gross profit rose 61% to $203.7 million
  • Adjusted net profit after tax up 43.2% to $42.9 million
  • Reported net profit after tax down 86.8% to $3.5 million
  • Kogan.com active customer base up 46.9% to 3,207,000, Mighty Ape up to 764,000
  • Cash balance of $12.8 million and no final dividend
  • Outlook: No guidance but poor start to FY 2022

What happened in FY 2021 for Kogan?

As you would see from looking at the Kogan share price performance over the last 12 months, FY 2021 was a difficult year for Australia's leading ecommerce company. Despite delivering a 56.8% increase in revenue, inventory management issues ultimately led to the company reporting an 87% reduction in net profit after tax to just $3.5 million.

In respect to the latter, management notes that excess inventory significantly increased storage costs, driving a 123% increase in variable costs to $44.9 million. It also led to an increase in marketing costs through promotional activity to rebalance inventory levels.

Positively, management believes the worst is behind the company now. It notes that following the end of the second half, inventory is approaching the right level for the business. As a result, it expects improved operating leverage moving forward, especially since growth in sales has resumed in FY 2022.

Nevertheless, that wasn't enough for the company to continue paying a dividend. The Kogan Board has decided to conserve cash for business investment and growth purposes and has paused dividends. This news could be weighing on the Kogan share price today.

What did management say?

Kogan's Founder and CEO, Ruslan Kogan, said: "Over the past 12 months, Kogan.com turned 15 years young, surpassed $1 billion in Gross Sales for the first time ever, surged past three million Active Customers, had record-breaking Black Friday sales, and made our largest ever acquisition to accelerate our expansion into New Zealand. And those are just the highlights."

"While we recently celebrated our 15th birthday, we feel like we're just getting started. Over the next year we'll be rolling out new and exciting projects to further support our loyal Kogan Community with Kogan First membership rewards, new and improved delivery solutions, and further enhancements to the online shopping experience."

"Over the past 18 months we have witnessed a massive swing towards the eCommerce retail revolution, one Kogan.com has been ready and waiting for, for well over a decade. We look forward to continuing our quest to delight our customers by making the most in demand products and services more affordable and accessible," he concluded.

What's next for Kogan?

Another key thing that could be pulling down the Kogan share price today was its poor start to FY 2022.

In July, the company reported gross sales growth of 5.1% but an ~80% decline in EBITDA to $2.1 million. Management notes that the latter reflects higher operating costs, which are gradually reducing.

It also revealed that it had inventory of $215.4 million at the end of July. This comprises $177.9 million in warehouse and $37.5 million in transit. As a comparison, the company ended FY 2020 with inventory of $112.9 million, comprising $32.5 million in transit and $80.4 million in warehouse. So there's still more than double the inventory in its warehouses since this time last year.

And while its performance has improved month on month, no comparison has been provided for the same period last year. Instead, the company has provided a comparison against July 2021's performance for selective metrics.

The first 18 days of August 2021 have seen gross sales increase 24.5% and gross profit lift 25% over the same period in July. No EBITDA figure has been provided to help with comparisons.

The Kogan share price is now down 45% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. 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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