Budget-conscious shoppers on Kogan’s radar

Ruslan Kogan says his online retail group has cleared the decks of excess inventory and will thrive in a tough consumer environment, which will make shoppers even more budget-conscious.

Kogan.com shares soared as much as 57 per cent on Thursday to a high of $4.70 after a market update indicated that cost-cutting and inventory reductions were ahead of market expectations.

The company said it was also looking for further efficiencies that could lead it to discontinue underperforming businesses.

Ruslan Kogan says his online retailer is well-prepared for a tougher consumer environment.

While gross sales were flat for the year, and gross profit fell nearly 10 per cent, it was the successful cost-cutting that impressed the market, according to RBC Capital Markets analyst Wei-Weng Chen.

“The key delta between Kogan’s reported result and RBC estimates, and consensus, appears to be at the operating expenditure (OPEX) line. OPEX of $166 million came in significantly lower than RBCe ($182 million) and consensus ($180 million),” Chen said.

He also noted that Kogan had reduced inventories by $32 million over the June quarter to $161 million.

Kogan was a major beneficiary of the pandemic, with consumers doubling the retailer’s sales amid lockdown. But a build-up of inventory, on the basis that the boom times would continue, left the group with too much stock and a string of downgrades.

Shares dropped as low as $2.66 recently after peaking above $20 last year.

But according to Kogan, the only lesson for the group from its recent struggles is that it needs to remain lean and agile.

“The learning is that what we’ve been doing as a business, pre-COVID, is the right thing to be doing. Make sure that you’ve got a strong balance sheet, make sure that you’ve got a very lean and agile operation that is able to react quickly to changing environments,” he said.

And Kogan is confident the group can continue to attract customers despite the economic clouds.

“It’s definitely a challenging environment out there,” he said.

“And as a company, you prefer everything to be firing on all cylinders … but for us as a business, we also know that when people start to tighten their belts and start watching their expenses, and being more frugal, it does mean that Kogan.com is going to be top of mind.”

Retail spending hit a record high of $34.2 billion last month, but retail turnover is slowing, up by 0.2 per cent in June.

Kogan was more circumspect about the line from Kogan’s announcement that it would “discontinue parts of the business that are not delivering value to customers or shareholders”.

“Generally speaking, there are projects and initiatives that make sense when you’re growing at over 100 per cent year-on-year, and that stop making sense when you’re not growing at over 100 per cent year-on-year,” he said.

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