Online retailer MySale Group on Tuesday revealed that complying with Australia’s new GST law has proven to be more challenging than anticipated, and both revenue and gross profit in Q2, its peak trading period, have suffered from the additional costs.
The UK-based company, which owns and operates 24 e-commerce sites in eight countries, including the flash-sale site NzSale in New Zealand, now expects to record a small underlying EBITDA loss for the first half of FY19. And despite taking action to restore revenue and gross margin, it has warned that revenue and profits for FY19 will be significantly below market expectations.
MySale Group reported $308 million in revenue in FY18, a 9 per cent increase from the previous fiscal year, and $12.44 million in underlying EBITDA, up 36 per cent on the previous fiscal year. Gross margin was 29.3 per cent, up 100 basis points on the previous fiscal year.
The company said Q1 trading was in line with expectations, but Q2 trading took a nosedive due to the ongoing disruption caused by the implementation of GST on low-value imports in Australia, MySale Group’s largest market.
The company said it made plans to accommodate the legislative change through a combination of input cost savings, supply chain changes and selective price increases, but these backfired, as the price increases impacted revenue and additional costs ate into gross profit.
The negative impact of the GST change was exacerbated by a poor product mix weighted towards lower-margin items and an insufficient proportion of own-buy inventory in the local distribution centre.
“We are very disappointed in the performance during this year’s peak trading period,” MySale Group CEO Carl Jackson said in a statement.
“In response to this underperformance we have significantly accelerated and expanded our existing plans to streamline the business, reduce the cost base and make changes to the product strategy. The results of these actions will be realised in the second half of this financial year.”
The group plans to address the product mix by removing lower-priced goods in certain categories and increasing the weighting of higher-priced goods in certain categories, locating all own-buy inventory in local facilities, sourcing more inventory from the domestic market and reducing freight costs by centralising inventory.
The board currently expects the FY19 to be significantly below market expectations, with a small underlying EBITDA loss in the first half, but expects an improved second half to drive a small underlying EBITDA profit for the full year.
This story originally appeared on sister-site Inside Retail Australia.