Why did the Kogan share price go backwards in FY22?

The e-commerce business sank 75% last financial year.

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Key points

  • The last 12 months has seen a terrible hit to the Kogan share price
  • Kogan saw profitability reduce throughout the year
  • Consumer demand has been falling, and the company is now seeing gross sales drop

Financial year 2022 was brutal for the Kogan.com Ltd (ASX: KGN) share price, falling by around 75%.

Since peaking in October 2020, Kogan shares have dropped around 90%.

Why has the market hurt the ASX e-commerce share so much? Investor sentiment has turned against the business and other ASX growth shares.

There were a few key events in FY22 as the business went lower and lower. Let’s look at some of those events in the last financial year.

FY21 result release

The company started FY22 somewhat positively with the release of its FY21 result. It reported that gross sales went up 52.7% to $1.18 billion, gross profit increased 61%, and ‘adjusted’ earnings per share (EPS) grew by 27.2% to 41 cents per share.

However, the company noted that its statutory net profit after tax (NPAT) fell 86.8% to $3.5 million.

Excess inventory in the second half of FY21 “significantly” increased storage costs. This led to variable costs more than doubling from $20.1 million in FY20 to $44.9 million in FY21. Subsequently, the company incurred elevated marketing costs through promotional activity to “rebalance inventory levels”.

There were also ‘logistics detention charges’, known as demurrage costs, amounting to $7.7 million. This was due to warehousing and supply chain interruptions from late 2020 to April 2021.

In a trading update for July 2021, the first month of FY21, the company said gross sales had grown 5.1% year on year. Kogan made ‘adjusted’ earnings before interest, tax, depreciation and amortisation (EBITDA) of $2.1 million for the month, reflecting high operating costs. But it said those costs were gradually reducing.

Furthermore, in the first 18 days of August 2021, the company saw gross sales go 24.5% higher than July 2021. Gross profit also went up 25% for the equivalent number of days.

However, the optimism was short-lived for the Kogan share price.

Losses in the FY22 first half

In February 2022, the company reported its result for the first half. Profitability reduced in HY22.

While HY22 gross sales went up 9.4% to $698 million, gross profit fell 8.1% to $108.1 million. Kogan made a $2 million EBITDA loss and a statutory net loss of $11.9 million. Losses are not particularly helpful for the Kogan share price.

Kogan said it had experienced continuing supply chain interruptions ongoing from COVID and “associated fluctuations” in consumer demand.

Although, one of the positives in the report was that its active customer numbers had grown 9.4% year on year to 4.07 million.

The final kick in the teeth for the Kogan share price

At the end of April 2022, the company released its quarterly update for the three months to March 2022.

The company said that consumer demand did not meet expectations, pointing to a slowdown in e-commerce activity in Australia.

In the FY22 third quarter, gross sales dropped 3.8% year on year to $262.1 million, while gross profit fell 11.2%. Adjusted EBITDA was a loss of $0.8 million. However, Kogan First members rose by 264% year on year to 328,000.

On top of this, investors need to figure out how inflation and interest rates may affect the Kogan share price and other ASX growth shares.

However, in a glimmer of hope for future profitability and perhaps the Kogan share price, the company said it will recalibrate its operating costs in line with current activity levels to support a return to historical operating margins.

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. has positions in and has recommended Kogan.com ltd. The Motley Fool Australia has positions in 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 Scott Phillips.

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