The Redbubble Ltd (ASX: RBL) share price is having another day to forget.
In morning trade, the e-commerce company's shares are down 26% to a two-year low of 53 cents.
This makes it the worst performer on the All Ordinaries Index (ASX: XAO) today.
It also means the Redbubble share price is now down 84% since the start of the year.
Why is the Redbubble share price crashing?
Investors have been heading to the exits in their droves this morning following the release of the company's first-quarter update.
For the three months ended 30 September, Redbubble reported a 5% decline in gross transaction value (GTV) to $134.9 million and a 5% reduction in underlying marketplace revenue (MPR) to $102 million. Both metrics were down 8% in constant currency despite the Australian dollar's significant weakness this year.
While that wasn't great, things got worse the further down the income statement you travelled.
For example, Redbubble's gross profit fell 7% to $39.4 million or 10% in constant currency terms.
Finally, the company's earnings before interest and tax (EBIT) turned negative during the quarter and went from a profit of $0.9 million to a whopping $17 million loss. That's despite its gross profit only falling $3 million year on year.
Bizarrely, at a time when most companies are cutting costs, Redbubble has increased its costs materially. It made a $3.8 million brand investment, which didn't even deliver sales growth, recorded a $4 million increase in other expenses, and increased its salaries and wages by $4.7 million.
The latter means that its salaries and wages totalled $19.3 million for the first quarter. Annualised, this equates to $77.2 million, which is the equivalent of half the company's market capitalisation!
But it won't stop there, it intends to increase its salaries and wages by $14 million to $18 million in FY 2023. This means at least another $9.3 million increase over the remainder of the year.
Management commentary
Redbubble's CEO Michael Ilczynski commented:
The MPR this quarter was down $5.1 million versus the pcp. This largely reflects the impact of cycling $4 million of mask sales within the Accessories category, and the encouraging and continued growth in the T-Shirts category of 12% or $7 million. The growth in T-Shirts was not sufficient to offset the decline in the Artwork and Homeware categories. The MPR result was impacted by slightly lower sales in Australia, Europe and the UK than expected, particularly in September. Importantly, the Group's largest market, North America, remained resilient in the first quarter of FY23.
Salaries and wages totaled $19.3 million for the first quarter. The increase in salaries and wages reflects our strategy to invest to drive revenue and margin growth, with 76% of new FTEs since July 2021 added to our growth focused areas of Product & Technology, Marketing, Commercial and Supply Chain & Logistics.
FY 2023 guidance
Redbubble's guidance for FY 2023 remains unchanged.
It continues to expect revenue growth and "compelling" unit economics, as represented by the GPAPA margin, supported by the 6% average base price rise from early May 2022.
