The Adore Beauty Group Ltd (ASX: ABY) share price has fallen around 20% over the last month. What happened?
The difficulty that the beauty e-commerce ASX share has seen in May has added to the decline that the business has seen since the start of the 2022 calendar year.
In the first five months of 2022, the Adore Beauty share price has fallen by 66%, or approximately two thirds.
Tech sector decline
The wider technology sector has seen a decline. And Adore Beauty hasn't escaped the downturn.
The S&P/ASX All Technology Index (ASX: XTX) has fallen by 5% over the past month, and it has dropped by more than 30% since the start of the year.
Looking at some of the bigger declines on the ASX in 2022, the Xero Limited (ASX: XRO) share price has dropped around 40% in 2022. The Temple & Webster Group Ltd (ASX: TPW) share price has fallen by almost 60%. And the Zip Co Ltd (ASX: ZIP) share price has fallen nearly 80%.
Investors have been heavily focused on what's happening in the local and global economy with inflation and how central banks may need to respond with rising interest rates.
In theory, higher interest rates can lead to lower asset prices.
Why do interest rates matter?
Warren Buffett, one of the world's most accomplished and wisest investors, once said to Berkshire Hathaway shareholders about interest rates:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature… its intrinsic valuation is 100% sensitive to interest rates.
Is the Adore Beauty share price decline justified?
In the company's recent FY22 third-quarter update, Adore Beauty noted that its sales growth rate had reduced to 9% year on year. Nonetheless, it did still report revenue growth. Active customers rose 7% to 880,000 while the number of returning customers grew by 47%.
However, the ASX share did note that it had to navigate some supply chain pressures in the three months to 31 March 2022.
Management said that beauty, especially skincare, is unique within the broader retail market and is resilient to economic challenges. Its products are used daily by customers who consider those items as essential and frequently repurchase.
Adore Beauty CEO Tennealle O'Shannessy said:
The nature of premium beauty means our customers spend more as they mature on the platform, with returning customers typically contributing more than 70% of total revenue.
We are sustainably reinvesting in the business by scaling initiatives which lay the foundation for long-term growth and further strengthen our point of difference. Our native mobile app, which now accounts for more than 100% of revenue, continues to deliver elevated levels of engagement, conversion, and average order values, and we are preparing to launch our first private label products in the fourth quarter of FY22.
Adore Beauty share price snapshot
Yesterday, the Adore Beauty share price fell by over 5%. Over the last year, Adore Beauty has dropped by 67%.
