Why the Adore Beauty share price fell another 20% in June

The sell-off turned ugly for this e-commerce business last month.

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Key points

  • Interest rates and inflation are rising, adding uncertainty and the continuing sell-off of ASX growth shares such as Adore Beauty
  • In June 2022, the Adore Beauty share price dropped almost 23%
  • However, management believes demand for beauty products will continue

The Adore Beauty Group Ltd (ASX: ABY) share price sank more than 20% in June 2022, adding to the declines already seen in 2022.

Shares of the e-commerce business declined 22.8% to finish the month at $1.05 apiece. This was significantly worse than what happened with the S&P/ASX 200 Index (ASX: XJO). The ASX 200 fell around 9% last month.

Adore Beauty is Australia’s leading online retailer. It sells more than 11,700 products across more than 270 brands.

Since listing a couple of years ago, the business has shown it was a beneficiary of the online shopping boom as more shoppers chose to buy their products online. However, investor sentiment has soured, particularly in 2022, with the Adore Beauty share price down more than 70% year to date.

What happened in June?

There were no operational announcements out of the company during June.

However, investors learned that Adore Beauty was being kicked out of the S&P/ASX All Technology Index (ASX: XTX).

Also, in the wider economic world, inflation and interest rate rises captured significant headlines and investor attention.

In June 2022, the Reserve Bank of Australia (RBA) increased its interest rate by 50 basis points, or 0.5%, and it has done so again in July with another 50 basis point increase today.

While higher interest rates hurt valuations in theory, it’s also possible that investors may think that demand for Adore Beauty products could take a hit if households have less money to spend on non-essentials.

However, Adore Beauty may have reason to have some confidence about the situation. With the release of the company’s FY22 third quarter update, the CEO Tennealle O’Shannessy said:

Beauty, especially skincare, is unique within the broader retail market and is resilient to economic challenges. Our products are used daily by customers, who consider these items essential and frequently re-purchase. 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.

What’s next?

The last investors heard from Adore Beauty was the FY22 third quarter where revenue went up 9% year on year to $42.7 million and active customers increased 7% to 880,000.

Next month, Adore Beauty will be releasing its 2022 financial result for the 12 months to 30 June 2022. It may also include a trading update to tell investors how it performed in the first few weeks of FY23.

Adore Beauty snapshot

While the company’s share price has been falling in recent months, since the start of July it has risen by more than 4%.

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 recommended Adore Beauty Group Limited. The Motley Fool Australia has recommended Adore Beauty Group Limited. 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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