Can the Kogan share price turn over a new leaf in FY23?

Is this ASX retail share at a bargain price?

| More on:
Happy couple doing online shopping.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Gross sales remain high at the e-commerce retailer 
  • However, profitability has fallen heavily, so management is going to work on profit margins 
  • UBS still rates the business as a sell 

The Kogan.com Ltd (ASX: KGN) share price has been sold off heavily. It's down around two thirds in the 2022 calendar year to date. But is this an opportunity?

The e-commerce retailer has been through a lot of volatility since the start of COVID-19. But, it's currently down more than 30% from the bottom of the COVID-19 crash. In other words, the market seems to be pricing the business as having less favourable prospects now than at the worst point of the pandemic uncertainty.

It's certainly true that the company's profitability has significantly reduced.

Let's look at the FY22 third quarter numbers, which is the most recent update.

Quarterly update

Total gross sales were $262.1 million, which was a reduction of 3.8% year on year. Gross profit fell 11.2% year on year to $41 million. Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) sank 110.5% year on year to a loss of $0.8 million. Reducing profitability may have had a big impact on the Kogan share price.

Active customers grew 3.6% year on year to 4.1 million, while Kogan First members jumped 264% year on year to 328,000.

Kogan explained that there was a decline in both exclusive brands and third-party brand sales, cycling "extreme growth" in the prior year.

Consumer demand did not meet management's expectation of continuing growth. It had $193.9 million of inventory at the end of the quarter. The company has an intention to "progressively recalibrate" its baseline level of inventory over the coming year.

Can things get better in FY23?

Management certainly thinks so.

In terms of sales, the business is quite a bit bigger than it was two years ago. FY22 third quarter gross sales were 42.6% higher than the third quarter of FY20.

If Kogan can improve its profit margins, then the profit numbers may look a bit better.

Kogan.com founder and CEO Ruslan Kogan said:

While market conditions are challenging at present, the foundations laid over the last 16 years are holding us in good stead. Our current focus on recalibrating inventory levels and core operational costs is aimed at returning the company to its historical margins and also to position the business for its next phase of growth.

Kogan didn't spell out what profit margin the business would be aiming for, but a return to profitability could go some way to reassure the market of its future prospects.

Looking at the earnings estimate on CMC Markets, Kogan is expected to return to making a net profit after tax (NPAT) in FY23, with a projection of 6.5 cents of earnings per share (EPS). This puts the Kogan share price at 42 times FY23's estimated earnings.

The FY24 profit projection is 14 cents of EPS, meaning it's valued at 20 times FY24's estimated earnings.

Broker rating

UBS rates Kogan as a sell because of the lower profitability and inventory level. The economic environment could also make it tricky for retailers. There is an ongoing impact on supply chains.

However, the Kogan share price has fallen so much that the price target of $2.90 represents a small rise over the next 12 months.

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.

More on Retail Shares

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.
Retail Shares

Why I just sold half my shares in this ASX 300 stock even though I still love it!

I’m still a big fan of this business.

Read more »

Two fashionable asx investors dancing among confetti.
Retail Shares

2 'very high-quality' ASX retail shares with significant inside ownership

A fund manager has named two appealing stocks to own.

Read more »

A man sits on a bench atop a mountain with a laptop, making investments with a green ESG mind.
Earnings Results

ASX All Ords stock KMD tumbles as interim dividend cancelled

Investors are hitting the sell button on ASX All Ords stock KMD today.

Read more »

Close-up Of Empty Shopping Cart Near Person's Hand Using Calculator Over White Desk
Retail Shares

Better buy: Coles or Woolworths stock?

Which stock should go in the shopping basket?

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Retail Shares

Why did Super Retail shares drop after going ex-dividend?

This is the story behind the decline.

Read more »

Happy couple doing online shopping.
Opinions

Is it too late to buy after the Kogan share price rocketed 90% in a year?

Is this online retailer still an investment opportunity?

Read more »

Two people comparing and analysing material.
Retail Shares

Better buy in March 2024: Wesfarmers stock vs JB Hi-Fi stock

Which of these two retail heavyweights would be a better buy?

Read more »

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.
Share Gainers

If you'd put $30,000 in this ASX retail stock 11 months ago, you'd have $116,000 now

When battered stocks make a comeback, it happens very quickly. Here's a prime example.

Read more »