Kogan hurt by GST changes

Roughly $130 million has been wiped off Kogan.com’s market capitalisation after the online retailer flagged declining first-quarter margins and a consumer watchdog investigation of one of its promotions.

Shares in Kogan.com had dropped 32 per cent by Tuesday morning, after the company said revenue from sales of global brands in the three months to September 30 was 27.4 per cent lower on the prior corresponding period.

The retailer blamed foreign-owned competitors who undercut Australian rivals by avoiding GST, and said margins had also been hit by the weaker Aussie dollar.

Kogan.com said it initially benefited from the July 1 change that abolished the $1000 GST threshold on imported goods as some competitors exited the market.

“[But] more recently, widespread avoidance of GST has become apparent,” the firm said.

“At this stage, the company is unable to determine whether the recent widespread avoidance of GST will be temporary.”

Analysts downgraded their price targets for Kogan.com – UBS from $8.65 to $5.50,  and Cannacord Genuity from $8.60 to $6.00 – due to the impact of the GST change and uncertainty over whether the issue is a short-term hiccup or larger structural problem.

“A focus for investors, and critical to a divisional turnaround, will be a swift government response that returns the division to trend growth or has this become a structural headwind for the industry,” Cannacord analysts wrote in a note to investors.

In a note to investors, UBS analysts said that the revenue slowdown was surprising, given there was little evidence that changes to the GST threshold had a material impact on Kogan’s revenue in July 2018, which was up 33 per cent year on year. This suggests that August/September revenue was up just 4 per cent year-on-year.

Meanwhile, other major online retailers posted strong results in the the first quarter of FY19. Temple & Webster saw a record 39 per cent year-on-year increase in gross revenue in Q1, and Inside Retail understands that online-only retailer and marketplace Catch is on track to have a “massive” first quarter.

UBS analysts said there was a risk that Kogan.com’s revenue from its global brands division could continue to slow if GST laws are not enforced heavily, if the company is not able to regain lost traffic, or if consumer pressures accelerate, though they see little evidence of the latter.

“Overall, we believe the market is being overly pessimistic on the core website business,” they wrote.

Nevertheless, Kogan.com shares dropped to their lowest price since July 2017, wiping $35 million from the value of founder Ruslan Kogan’s personal stake.

“We continue to execute our long-term strategy to grow our e-commerce footprint and make the most in-demand products and services affordable for all Australians,” Ruslan Kogan said.

“While growth in the Global Brands division presents a challenge in the short term, we have built a resilient portfolio of businesses, with the core divisions of exclusive brands, partner brands and Kogan Mobile continuing to show healthy growth.”

ACCC enquiry

It also announced that the Australian Competition and Consumer Commission had this month asked for “certain information relating to the marketing and pricing of a promotion” run in June.

“Kogan.com has strict processes and procedures in place to ensure compliance with the Australian Consumer Law and takes its obligations under law very seriously,” the retailer said in a statement to the ASX.

“The company is in the process of compiling all information the ACCC has requested and will cooperate with the ACCC in its enquiry.”

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