Why is the Kogan share price dropping?

Posted: 21 May 2021 12:07 pm

The online retailer’s shares have lost more than half their value in the last 6 months.

Shares in online retailer Kogan.com (ASX: KGN) have slid in early trade on Friday, tumbling to their lowest level in nearly a year. At the time of writing, the stock had dropped more than 10% to $9.13.

Why the Kogan stock price is sliding

Kogan.com outlined a trading update on Friday, which flagged revised earnings guidance. The company says its best projection for adjusted earnings (EBITDA) for the 2021 financial year is in the range of $58 million to $63 million.

That translates to a 11–18% miss on market consensus for Kogan earnings for the year to 30 June. However, it is still higher than the adjusted EBITDA of $49.7 million for FY 2020.

The retailer blamed the profit warning on growth pains. The company said it was suffering from bloated inventory levels, cost pressures, logistics headaches at its warehouses and elevated advertising costs as it boosts shipments to shoppers.

Kogan also said its FY21 accounts will be hit by shipping fees and rising prices for key consumer goods.

“In order to provide the delivery experience customers desire, Kogan.com built up its inventory levels from late 2020, which has caused high warehousing costs that are continuing,” the company said in a statement to the ASX.

Growth problems

Kogan, along with buy now pay later leader Afterpay (ASX: APT), has been a market darling of the tech sector and among the biggest beneficiaries of the pandemic, which triggered a surge in online retail.

It has steadily recorded high double-digit earnings growth and its share price ballooned five-fold in 2020, peaking at $25.57 in October. But the shares have lost more than half their value in the last six months alone, as the company comes to terms with dealing with this rapid growth.

The business effectively doubled in size during the first half of FY21, but in April the company revealed that earnings had dipped 24% in the third quarter as demand returned to more normal levels and inventory levels rocketed.

It is learning the hard way.

“The company has learnt valuable lessons over the last few months, including many key strategies on how to better scale operations of a large fast-growing e-commerce company,” Kogan.com said on Friday.

Considering investing in Kogan.com shares?

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