Here’s why the Kogan (ASX:KGN) share price is being sold off today

Kogan’s shares are tumbling again…

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Key points

  • Kogan share price falls in response to update from Wesfarmers’ Catch business
  • Catch sales grew just 1% during the first half
  • Catch and Kogan reported strikingly similar sales in the prior corresponding period

The Ltd (ASX: KGN) share price is having a tough start to the week.

At the time of writing, the struggling ecommerce company’s shares are down 3% to $7.95.

This means the Kogan share price is now down 62% over the last 12 months.

Why is the Kogan share price falling today?

The catalyst for the weakness in the Kogan share price on Monday appears to have been the release of an update from one of its rivals.

This morning Wesfarmers Ltd (ASX: WES) released its half year trading update, which included a summary on its Kmart Group business. This business is home to Kogan’s rival, Catch.

As you might have guessed from the Kogan share price performance today, that update was not an overly positive one.

According to the release, the Catch business recorded a first half sales increase of just 1% compared to the prior corresponding period. In addition, Wesfarmers revealed that Catch is expected to post a material loss during the half.

It explained: “An EBT loss for Catch of between $45 and $43 million is expected for the half, reflecting continued investment in team, technology, marketing, and capabilities to support long-term growth, as well as higher levels of inventory clearance compared to the prior corresponding period.”

Catch vs Kogan

Given their numerous overlaps, Catch is a great company to compare Kogan with. In fact, during the prior corresponding period, the two companies delivered very similar results.

For the six months ended 31 December 2020, Catch reported a 95.6% increase in gross transaction value to $610 million. Whereas Kogan posted a 97.4% increase in gross sales to $638.2 million.

In light of this, the market appears concerned that Kogan could report equally weak numbers next month when it hands down its half year results. Though, it is worth noting that in late November management said “we are proud to have delivered another period of top line growth” for July through October.

But as investors in the retail sector know all too well, the December period can make or break a retailer’s results. So, a lot could have changed between then and now. We’ll find out next month.

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 and has recommended ltd. The Motley Fool Australia owns and has recommended ltd and Wesfarmers Limited. 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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