The Kogan.com Ltd (ASX: KGN) share price has dropped by around 24% over the last month. What's going to happen next?
When did the Kogan share price start declining?
Kogan reported its result on 24 August 2021.
On 23 August 2021, Kogan shares ended the day at $13.13. A day later, it finished at $11.06 – 16% lower. Almost a month later, it has dropped another 10% from $11.06. That's at today's pre-open price.
FY21 was a mixed year for the e-commerce ASX share.
Sales, gross profit and customers rose strongly. Over the financial year, gross sales increased 52.7% to $1.18 billion, gross profit grew 61% to $203.7 million and Kogan.com's active customers rose 46.9% to 3.2 million. It also had 764,000 active customers.
However, it was a different story for the profitability of the business. Kogan was able to show that adjusted earnings per share (EPS) – which removes non-cash and one-off items – increased by 27.2% to $0.41 per share. However, actual EPS sank 88.3% to $0.03.
Excess inventory in the second half of FY21 significantly increased storage costs, which more than doubled its variable costs to $44.9 million (up from $20.1 million in FY20). It also had to spend on promotional activity to rebalance its inventory levels.
Next, there were logistics detention charges of $7.7 million relating to warehousing and supply chain interruptions. This was resolved before the end of FY21.
Finally, there was $12 million for the provision of the likely payment of the third and fourth tranche payments for the purchase of Mighty Ape.
The trading update from Kogan may also have had an effect on the Kogan share price.
Trading update
After telling investors about what had happened in the last financial year, management also revealed how the e-commerce retailer had started in FY22.
It said in July 2021 it saw gross sales growth of 5.1% compared to July 2020. There was also gross profit margin improvement compared to June 2021, though below July 2020.
Kogan generated $2.1 million of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), reflecting high operating costs which are gradually reducing.
The first 18 days of August 2021 showed a further strengthening of growth compared to July 2021. Gross sales were 24.5% above July and gross profit was 25% above July.
What's next for the Kogan share price?
You'd need a time machine to truly know what's going to happen next.
However, the business did say what it plans to do:
During FY22, Kogan.com expects to deliver strong growth in Kogan First memberships, ongoing growth in exclusive brands, further enhancement and development of Kogan Marketplace, and the benefits from the full integration of the Mighty Ape team and operations flowing through.
To improve its capabilities, the company also anticipates potentially implementing logistics projects that would not require significant capital expenditure and can be supported by the company's balance sheet.
Kogan is currently rated as a buy by Credit Suisse with a price target of $14.06. The broker thinks there are is an opportunity for the e-commerce ASX share to capitalise on the rise of e-commerce over time.
The broker puts the Kogan share price at 24x FY23's estimated earnings with a projected grossed-up dividend yield for that financial year of 2.9%.
