Finally, a good day for the Kogan (ASX:KGN) share price. What’s happening?

Kogan shares rose around 2% today. What is going on?

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The Kogan.com Ltd (ASX: KGN) share price went up around 2% today. What is going on for the e-commerce business?

There hasn’t been any official news out of Kogan today. However, the company is currently running its ‘Kogan Frenzy 2021’ sale. That’s where the business is offering “brilliant” savings on 1,000s of products across its website.

The next couple of months are a key part of the company’s financial calendar. It includes Black Friday, Cyber Monday and the Christmas retail period.

However, Kogan is already reporting that its gross sales are recovering.

First quarter of FY22

The first half of the 2021 calendar year was characterised by less-than-expected customer demand which had the flow-on effect to excess stock, warehouse costs and lower margins.

But the three months to 30 September 2021 showed gross sales of $330.5 million, an increase of 21.1% year on year and a rise of 23.2% quarter on quarter.

However, excluding Mighty Ape (the New Zealand business), Kogan.com sales were only up 8% year on year to $294.8 million. Quarter on quarter, Kogan.com sales were up 24.3% and Mighty Ape sales were up 15%.

Turning to gross profit, total gross profit was down 1.7% year on year, up by 31.6% quarter on quarter. Kogan.com’s gross profit was down 17.4% year on year, but up 38.8% quarter on quarter. Mighty Ape gross profit was up 3.6% quarter on quarter.

The company’s adjusted earnings before interested, tax, depreciation and amortisation (EBITDA) was down 57% year on year to $10.8 million. But this was an increase of 240.7% quarter on quarter.

Inventory reduced from $227.9 million at the end of FY21 to $194.3 million at 30 September 2021.

Inventory problems solved?

One of the key things that may have been dragging on Kogan’s share price (and the profitability) was its inventory pressures, partly caused by excess inventory.

Kogan said it has solved these inventory issues and closed a number of inefficient overflow warehouses. The reduction in inventory has led to the company significantly reducing its warehouse costs, leading to an average variable cost saving of around $0.8 million per month in the first quarter of FY22 compared to the last quarter of FY21.

Increasing scale of the business

The e-commerce ASX share said that in the last few months, it has been focused on growing Kogan Marketplace and Kogan First (its membership program), improving logistics and customer service, whilst also achieving synergies through integrating the Mighty Ape business.

Kogan noted that Kogan.com active customers grew 30.7% year on year to 3.35 million at 30 September 2021. Mighty Ape had active customers of 748,000.

The number of Kogan First members increased 171.1% year on year, whilst rising 64.4% quarter on quarter, to 197,000.

Is the Kogan share price now an opportunity?

Analyst views are mixed on the business.

The broker UBS is ‘neutral’ on Kogan, with a price target of $10. UBS analysts feel that Kogan’s margins will be challenged by higher costs because of supply chains issues, higher spending to win customers and so on.

Based on the UBS numbers, the Kogan share price is valued at 40x FY22’s estimated earnings and 32x FY23’s estimated earnings.

But Credit Suisse rates Kogan shares as a buy, with a hefty price target of $13.88. The broker noted that the first quarter showed elevated levels of growth, but lower profitability.

Based on Credit Suisse’s numbers, the Kogan share price is priced at 34x FY22’s estimated earnings and 23x FY23’s estimated earnings.

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Motley Fool contributor Tristan Harrison 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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