RBC Capital Markets analyst Tim Piper attributed the drop in gross profit to a slowdown in growth in the company’s “exclusives” channel, which refers to the company’s private-label brands it sources internationally.
Mr Piper said exclusives accounted for around 50 per cent of Kogan’s gross profit and much of the online retailer’s gross margins. It expanded just 17 per cent for the half against expectations of over 30 per cent growth.
‘The exclusives channel was the key miss on our forecasts from today’s update.’
RBC Capital Markets analyst Tim Piper
“The exclusives channel was the key miss on our forecasts from today’s update, we estimate the remainder of the business is tracking roughly in line with our expectations,” he said.
Chief executive Ruslan Kogan defended the company’s performance in its exclusives division, telling The Age and The Sydney Morning Herald it showed “solid growth from a much larger base”.
“While it’s still growing stronger than the overall business, it’s not as strong as the 30 per cent plus growth we had for several years during a time when the business was much smaller,” he said.
He indicated growth in the company’s new marketplace division, which offers an eBay-style service where individuals sellers can list their products online, may have had an impact.
“While there’s no doubt that there would be some cannibalisation of sales (in particular the third-party brands), it enables our business to grow infinitely without any inventory or capital constraints,” he said.
Marketplace’s gross sales grew 44 per cent in the second quarter when compared to the first quarter, with Mr Piper saying the division was “well-placed” to beat estimates of $100 million in gross sales for the 2020 financial year.
With the Black Friday sales driving a huge uptick in retail trade for November, analysts are concerned spending in December may have significantly deteriorated. Data from ANZ bank indicates credit card purchases for the last half of the month were down 5 per cent compared to 2018.
For the first quarter, Kogan’s gross profit grew 28 per cent on the prior corresponding quarter, and exclusives revenue grew 35 per cent. Despite cycling a moderately weak first quarter in 2019, the overall slower growth for the half indicates the key December trade period may have been weaker than expected.
Mr Kogan said the business “smashed records” for both Boxing Day and Black Friday, but would not indicate if December’s trade was muted. Broadly, he said the pure play online retailer was “not a good yardstick for general consumer confidence”.
Kogan’s number of active customers also continued to grow, up 10 per cent to 1,699,000.
Dominic Powell writes about the retail industry for the Sydney Morning Herald and The Age.