Cettire Ltd (ASX: CTT) shares are under pressure on Tuesday morning.
At the time of writing, the ASX stock is down 17% to $1.77.
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Why are Cettire shares crashing?
Investors have been selling this online luxury products retailer's shares this morning following the release of its first quarter update.
According to the release, the company's sales revenue came in at $155 million for the three months ended 30 September. This represents an increase of 22% versus the prior corresponding period.
This was driven by a 43% increase in active customers to 698,066 and a 6% lift in average order value to $777. Though, it is worth noting that active customers are only up a fraction from 692,000 at the end of June.
The ASX stock's delivered margin was 17% for the quarter. This is down from a delivered margin of greater than 20% in the prior corresponding period. Management notes that this reflects continuation of heightened promotional activity, particularly in July and August.
This led to Cettire's adjusted EBITDA falling materially year on year. The company reported adjusted EBITDA of $2 million for the three months. This is down 77% on the $8.7 million recorded in the prior corresponding period.
Management notes that its profitability improved over the course of the quarter, culminating in September adjusted EBITDA margin of approximately 5%. This was supported by a reduction in marketing investment relative to sales revenue.
Management commentary
Cettire's founder and CEO, Dean Mintz, notes that trading conditions were soft during the quarter. He said:
Over the course of the first quarter we addressed the softer trading conditions and continued heightened promotional activity in the global luxury sector by optimising operating settings to reflect our increased emphasis on profitability. Improvements to both delivered margin and adjusted EBITDA were realised towards the end of the quarter as the benefits of our strategy materialised.
By adjusting our operating settings throughout July and August, we successfully offset some of the external industry pressures, enabling Cettire to exit the quarter with enhanced profitability in September, while still achieving underlying growth in an otherwise challenging global luxury demand environment. Not only does this demonstrate our ability to generate and protect through-the-cycle profits, it also positions Cettire well as we head into peak seasonal trade.
Mintz remains positive on the future, talking up Cettire's outlook. He said:
Looking forward, we are confident underlying demand for luxury will remain resilient and will ultimately improve in the next 6-12 months. The luxury sector's growing total addressable market and our differentiated business model provides Cettire with significant runway to deliver on its strategy to drive profitable growth and continue to scale its platform globally.
